Greetings and welcome to Marriott Vacations Worldwide First Quarter and Full-Year End 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.I will now like to turn the conference over to your host, Mr. Neal Goldner, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Hector, 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 & Administrative 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 last night, along with our comments on this call are effective only at the time they are made and will not be updated as actual events unfold. Throughout the call, we will make reference 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 their Investor Relations page and the Financial Information page on our website at ir.mvwc.com.It's now my pleasure to turn the call over to Steve Weisz, President and Chief Executive Officer of Marriott Vacations Worldwide.

Thank, Neal. Good morning everyone and thank you for joining our fourth quarter earnings call. 2019 was certainly a year of change for our organization from harmonizing sales practices across the business to implementing new human resource and accounting and financial systems we accomplished our. It certainly wasn't easy and as you might expect, when integrating two companies of similar sizes, everything didn't go exactly as planned.But looking at our full year results, with contract sales increasing roughly 6.5% to $1.5 billion, total company VPG expanding by 3% and adjusted EBITDA growing 14%. I couldn't be more satisfied with how the year came together. We ended the year on a high note as well, growing contract sales by 10% in the fourth quarter, driven by a 9% improvement in VPG and delivering 15% adjusted EBITDA growth, once again, illustrating the strength of our business model.So, let's discuss how we achieve these results and our plans going forward starting with our vacation ownership business. As we've discussed with you in the past, we spent a large portion of 2019, making changes in our sales and marketing programs and operations to capitalize on the long-term opportunities we envisioned when we acquired ILG, and I believe we started to hit our stride. As I mentioned, we've delivered 10% contract sales growth in the fourth quarter, which is right in line with what we said we would do back in November.Looking at the components of that growth, we drove a 7% increase in sales at Legacy in MVW with North America VPG improving to $3,727, with first time buyers representing a larger mix of our tours and nearly a third of our sales. And sales growth at Legacy-ILG accelerated again, growing 16% of the quarter, with VPG improving double digits as we made further…

Thank you, Steve, and good morning everyone. I too am very pleased without 2019 ended as well as the progress we've continued to make on the integration and transformation of the two businesses. Adjusted EBITDA increased 15% in the fourth quarter, driven by strong growth in our vacation ownership segment, as well as benefits from our synergy offers.Looking first at our Vacation Ownership segment, adjusted EBITDA increased 15% to $226 million and margin expanded by 150 basis points. Consolidated contract sales increased over 10%, our best sales growth quarter of the year and adjusted development margin, which adjust for revenue reportability and other charges increased 18%.Our adjusted development margin percentage increased 220 basis points to 25.6%, driven by a higher percentage of lower cost inventory being sold in more efficient marketing of sales spend. In our financing business, after excluding the impact of purchase accounting adjustments, revenues increased 13% to $72 million, and financing revenue, net of expenses and consumer financing interest expense increased 18%.This growth primarily reflects the higher contract sales as well as strong financing propensity. Consumer financing interest expense increased due to a higher outstanding debt balance partially offset by lower interest rates on our securitizations. The average FICO score buyers who financed with us in the quarter remained strong at 737.We have seen slightly higher defaults in our portfolio, mostly attributable to loans that were originated under sales and underwriting standards used by ILG. As we have discussed previously, in order to drive sales prior to our acquisition, ILG reduced down payment requirements for buyers with sub 600 FICO scores and ramped up less efficient off-premise or OPC marketing channels, with little or no income or qualifications for potential buyers.We have eliminated or substantially improved these practices to better align with those of legacy MVW, and…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question comes from line of Jared Shojaian with Wolfe Research. Please proceed with your question.

John, maybe just going back to the comments on the free cash flow that you just gave us, I'm hoping you can walk us through the potential capital return build for 2020. I guess if we start with your adjusted free cash flow guide of 425 to 500 and work down making all the adjustments on the one timers, any new debt you may take on, excess cash from I guess the land sales that you just did, how are you thinking about how much, I guess discretionary capital is going to be available for buybacks, dividends, or any other outside, activity? Thank you.

Sure. Jared. so yes, if you start with the four 25 to 500, as you highlighted, given some of the sales we did late last year, as well as the, the Asian notes securitization, which generated about 65 million of cash. We start the year actually with call it roughly an additional a 100 million plus of cash that just given the timing of those, so you can add that if you will, to the 425 to 500.The other thing we have is, we probably had another call at $80 million of notes that are available for securitization within our trust, or excuse me, our warehouse line at the beginning of the year. And then the opportunities are really around asset dispositions, additional ones this year as well as on offset for the additional spending, that we have on the integration and transformation costs, which on an after tax basis, that's probably roughly 50 to $60 million.So, when you kind of put it all together, you're talking roughly 500 to close to 700 million of cash before dividends given our current dividend pays of, call it roughly 90. You're in a similar scenario today where we bought back shares north of 470 million at a minimum. We should have some work in that vicinity and then there's potential for some upside depending on the timing of some of the asset dispositions.

And then, so I guess I'm coronavirus, can you help us understand what percentage of your costs are fixed costs that are not tied to tour volumes and how that might help you if coronavirus were to spiral out of control in the U.S.? And then if you could also give the percentages of your EBITDA outside the U.S., I think you said Asia-Pacific was immaterial impact, but I guess what percentage are even outside of U.S. and maybe if you could break it up by geography, that would be helpful? Thank you.

Sure. I'll, take a stab at it probably do a better job of answering the second question than the first part of it. The just to give you a specific, Asia-Pacific in 2019 was 2.6% of our adjusted EBITDA. So, again, not all that material, and of course Asia-Pacific is represented by not only sales to Chinese residents, but also some predominance of our sales are related to ex-pats based elsewhere in that part of the world.In terms of -- I can give you a sales volume, I haven't broken down the actual EBITDA number yet, because in anticipation of your question, I can tell you total North American sales volume from international customers was about 10.7%. Let me break that down for you. About $50 million of that was eastbound from Japan to Hawaii, 30 million was Latin America, and another $18 million was specific to resorts in Florida from both Latin America and from Europe.So, if you apply the call it $150 million of sales in North America from international customers, you take our development margin against that and 20 plus percent, that's call it, $30 million of EBITDA. If it all went away, which certainly we wouldn't anticipate. As far as, the fixed cost versus the variable, I guess, we could try to swag it. 30% of it is fixed and 70% variable, roughly. So, we'd be happy to come back to you with some more specifics if you'd like, but that kind of gives you at least a high level view on it.

And Jared, from an adjusted EBITDA overall, if you look at our Europe and Asia operations, it's less than 5% of our -- and probably a little bit more than half of that 5% Europe and a little bit less in the 5% is coming from Asia, and that's both our vacation ownership as well as our exchange EBITDA.

Your next question comes from line of Brian Dobson with Nomura Instinet. Please proceed with your question.

So, you had mentioned, intelligent automation and also advanced analytics, do you think that you could give us a little bit more color on how you're using that to drive tour flow and perhaps give us an update on your online marketing efforts?

Sure. So, in terms of automation sometimes called RPA, Robotic Process Automation, much of that is back of the house stuff, where we're using it to kind of leverage some of our cost structure. As you might imagine, there anything from a balance sheet validation up through mechanical entries, but today or before today, people were actually having to do it and you'd do have some variability in terms of how much the cost was as well as the accuracy.With RPA, we have been able to do a number of things where we've taken some of those previously manual functions automated; and as you might imagine, there much more precise in terms of how they get executed and they're also very helpful in reducing costs. In terms of artificial intelligence or automation on the tour side, so we've done some testing and the results have been very encouraging thus far.To look at tour flow and try to profile, which tours are the most inclined to make purchase versus those that are not. We're now being able to apply some of that same logic stream to looking at. How we source towards our channels, figuring out that there are certain channels in which we have a deeper vein of those folks that are more inclined to purchase versus those that are not, and we are adjusting our channels accordingly. It's early on, Brian. I don't want to declare victory yet except to say that, what we have seen thus far has been very, very encouraging for us.

That's great. And then, do you think you could also expand upon the new partnership agreements that you would attune the rental business as far as getting new users to test your product?

I don't recall us talking about that specifically, in the exchange business you mean?

Yes, that's right, in exchange business.

Okay. Well, this is simply a matter of the way you think about the exchange business, it kind of goes in a couple of different ways. Number one, trying to sign up new corporate affiliations, when I say corporate, that's -- the broader definition, not the specific Delaware Corporation things, where we sign up a new developer to be affiliated with interval international. And they in turn pay a corporate membership fee to avail their owners, new members, with the benefits of being affiliated through the exchange company.In turn, once a member decides they want to make an exchange; there is an exchange fee that comes along with that. So, there's that part of it on the traditional kind of exchange stuff. We've talked before about the planet fitness affiliation where we realized that the growth of new timeshare developers and the affiliations certainly not been at a pace that it has been historically.So, now we're looking to go outside of the traditional timeshare channel and make benefits available of the services that interval provides in terms of travel, whether it be cruises, hotels, air, et cetera, as well as obviously their ability to use their inventory that they have available to them to those members. So, as an example, planet fitness, planet fitness pays us a modest affiliation fee.And then, we own commissions for booking cruises or air or hotels. We also sell them their getaway packages and that is a benefit that they pass on obviously to their members. And in return, interval members also get a bit of a benefit in terms of their membership in planet fitness. That's what one example and we continue to have dialogue with a number of different organizations about trying to expand on those kinds of relationships. There's a way of broadening intervals footprint in the marketplace.

Your next question comes from the line of David Katz with Jefferies. Please proceed with your question.

With respect to the synergies, I just want to make sure that I'm mapping and hearing correctly. We're at 95 run rate for the end of the year, another 25 to 30. Was that something to come on line this year? And or is that something, because the stated goal was really by the end of 21 to get to around 125, is there -- am I thinking about that wrong? Is there a deceleration there? Or are you quite frankly, John, you sandbag us here?

Let's go through the numbers. I don't think we're sandbag you, but at the end of 19, we exited the year with 90 -- excuse me, $65 million, so 65 million of run rate synergies in place. So, I said another way, if we put nothing else in place during at 2020, we would end the year with $65 million of synergy savings, if you will, in 2020. What we said was, we expect to exit the year at a minimum of $95 million of run rate synergies at the end of 2020.And given the timing of when those will come into place, we expect to get 25 to $30 million of incremental in the year savings. Okay, and then by the end of 2021, once again, that's the minimum of one 25 of run rate savings. As we've always said, we continue to look harder, we see additional opportunities and we're working through all that. But, yes, we're going to do everything we can to get more synergy savings than what we've talked about.

And my follow-up is, apologies for dealing in some hypothetical statistics that we don't normally deal with, but do you happen to know what percentage of your owners or visitors are drivers rather than flyers?

Well, I'm going to give you a cute answer and then I'm going to try to get better. I believe everybody drives. Even if one flies to the airport and rents a car, they have to get to the resort in some way, shape or form. We don't have any resorts that are in airports.

Got it.

With that said, obviously, Hawaii is 100% fly. There are, as you get to some of the -- some resorts on Hilton Head, I'm going to give you a swag, that's all I can give you, because we don't bother to ask people how they got there. I would say, a greater preponderance of people drive to Hilton Head versus fly to Hilton Head, because quite frankly, the orientation and the ownership is basically East of the Mississippi and most of those folks are simply drive to get there. As you go across the waterfront, if you've got a Palm Desert, Palm Desert is almost a 100% drive markets. Those are mostly people coming out of Southern California. Again, I'm giving you some protestors, so that gives the idea.

Okay.

So, depending on the location, that's driven. I mean, we do not have a lot of resorts save some of our pulse properties that are in major metropolitan areas, which would lend themselves to be more of a fly market than a drive market. But again, we've never attempted to try to pull people to say, how did you get here? Because quite frankly, we're not sure exactly what we do with it, even when we got the information. But, that should give you some sense.

So unofficially, quantitatively, qualitatively rather, it does sound as though a majority, it's fair to classify it our drivers.

Yes, I think that's probably right.

Okay.

And I think I know where you're going with this. So, let me try to get there. If you think about, because of probably '19 and all of that to what degree people would be less inclined to take trips outside of the North America, so to speak. I think, we are well-positioned, given the distribution of our products, about where we have property, et cetera.So, I think we're all hopeful that, this won't be rise to the occasion that some people are imagining it to about, but I look back on the SAR stuff of 2003, and to be honest with it, in SARS, our sales grew in the same year the SARS came out and when I checked with the numbers and we saw that they saw increased sales and timeshare in the United States in 2003 of 8%, 9% in 2004.So, I think, again, we're doing everything that we know how to do to make sure that takes the cautions, not only for our guests, but also our associates, and we're well-prepared if we need to continue to escalate what we do on properties, et cetera. But I think we're dealing with it as best as we can.

Your next question comes from line of Patrick Scholes with SunTrust Robinson Humphrey. Please proceed with your question.

Just one question here. I'm wondering, if you can call out any particular properties or projects that are driving that acceleration in sales growth this year? Thank you.

I'm sorry, disproportionately are driving that 7% to 11% growth.

Yes, I think, let me -- without giving you this specific properties, let me say that I think we all get an outsized proportion of that growth from the former of the Vistana properties, just based on the kind of sequential growth that we've been able to see in terms of VPG growth, et cetera. I mean, do you see, give you kind of a sense of how all that worked. We've got -- you may recall that in the first quarter, Vistana was actually down 5% almost 6%. Q2 was up 4%, Q3 was up 9%, Q4 was up 12% and we believe than what we've seen thus far this year that we'll continue on that kind of cadence and growth.So, and then I think we'll still see mid-to-high single digit growth in the MVC business. But I've had to break it between the two, I would say, it'd be a higher percentage of growth on the form of Vistana properties and everything else. Just looking at our results so far this year, that growth is pretty well distributed throughout the system. We're not seeing any particular property or resort. Because just keep in mind, we're not selling individual property resorts, we're selling the portfolio. And so, you look at the sales distributions of that portfolio product, but that's breaking down basically as I described.

[Operator instructions] Your next question comes from the line of Brandt Montour with JP Morgan. Please proceed with your question.

So, I was just wondering, if you could maybe talk a little bit about close rates for new owners, sort of how that's tracked over the past few quarters? And then specifically with regards to ILG maybe remind us of the major deficiencies that you've split it? But then, how many are left to go? So any are we in that specific segment? Thank you.

Yes. So, let me back up a little bit. As you probably are well aware, closing rates of existing owners are higher than closing rates on first time buyers, stands to reason that the owner to buy more of the product, have high propensity to close the contract than a first-time buyer. Where we have seen some very encouraging results, as I referenced in my remarks, is in first time buyer, if the VPGs and that's been driven by the close rate improvement.And now that's again, we started it late third quarter into the fourth quarter, we've seen close rates, quite frankly, go up point to point and a half, which is very material when you get to the VPG calculation and the flow through rate on the sales and marketing costs. Vistana has a higher percentage of first time buyers than existing owners, although it's not overly dramatic, but it is something that, you need to understand.And so, I gave a statistic in my remarks that, about a third of our sales came from first time buyers for the full year. And, if you break it down, the tour volume about half of our tours came for first time buyers. So, as we make continued improvement in first time buyer closing, you might imagine that, unless we have a dramatic change in the shift of first time buyers versus existing owner tours that you'll start to see the percentage of sales from first time buyers go up, somewhat materially.Does that help? I mean, we don't disclose closing races as I think you're well aware, but that should give you somewhat of at least atmospheric backdrop to do what you need to do with it.

That was good color. Thank you. And then, just maybe you could expand on your sort of thoughts on M&A in the landscape and the industry as a whole. I guess, how could -- how can Marriott Vacation benefit from your position and what would be considered an ideal sort of ultimate outcome of the ongoing M&A?

Well, as you might imagine, we don't really discuss a lot about M&A because obviously a lot of speculative and everything else. Let me just say this, as we have said all along that, there is a number of different things we look at in terms of any kind of acquisition candidate, we might be reviewing. One of which is, is it a good strategic fit would give us a broader footprint in the marketplace that we don't enjoy today or we can't get there, if you go through normal organic growth.Two, would there be a good cultural fit, which means, and one of the things I can report on the ILG acquisition is that's been the a while we thought it was going to be a good cultural fit. I'm happy to report it's been a great cultural fit. We had a long-term relationship with the exchange company of Interval, and we knew that that was a good fit, but it really has worked very, very well. And so, we're very pleased with that.And then of course, the third most important thing is accretive, given our various uses of cash is we've talked about, organic growth of the business. If there is an M&A candidate out there that makes the screen, and it goes through those kind of three tests that we apply to them, then we're certainly are interested.But, I got to tell you, I think we've got a very nice stable of brands, particularly in the vacation ownership business that is hard to find a comparison elsewhere in the landscape. But, we'll always be on the lookout and if you see something that makes sense for our shareholders, we will certainly pursue it.

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

Thanks, Hector. Thank you for your time today. I hope today's call give you the same sense of optimism that we have for our company. We are a leading player in a growing industry, and I believe our competitive position is second to none with the best collection of brands in the business. We grew contract sales by 10% in the fourth quarter and this year has started out strong.The integration of ILG is going well, and we see numerous growth opportunities ahead of us. And we expect to deliver another $25 million to $30 million of energy savings this year, putting us well on our way towards achieving a minimum of $125 million of run rate savings by the end of next year.With that, I want to thank you for your interest in Marriott Vacations Worldwide, 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. Thank you for your participation.