Greetings and welcome to Marriott Vacations Worldwide First Quarter 2021 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Neal Goldner. Thank you. You may begin.

Thank you, Rob and welcome to the Marriott Vacations Worldwide first quarter 2021 earnings conference call. I am joined today by Steve Weisz, Chief Executive Officer and John Geller, President and Chief Financial Officer. I 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 the last night, and a presentation we added to our website this morning as well as our comments in this call, are effective only one made and will not be updated as actual events unfolds. 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 of our website at ir.mvwc.com.

Thanks, Neal. Good morning, everyone and thank you for joining our first quarter earnings call. It’s now been more than a year since COVID-19 came into our lives, but that certainly didn’t mean people forgot about traveling. If anything, the past year reminded us what is really important in life, family, experiences, and togetherness, all the things that travel offers. As a company whose products enable these unique and memorable occasions, it’s been gratifying to see more and more people at our resorts this year. As vaccination levels rise, and even more people return to travel, we look forward to welcoming them as well. JW Marriott Sr. was fond of saying, if we treat our employees right, they will treat our customers right. And if customers are treated right, they will come back. This past year has been quite difficult for many of our associates. So I am very happy to say that, with occupancies recovering as they have, we’ve been able to bring back most of our associates to work. And they are hard, again, working to take care of our guests, delivering great vacation experiences. Our results this quarter are evidence of the continued recovery in our business. At this point, nearly all of our sales centers have reopened and contract sales and exchange transactions grew substantially on a sequential basis during the first quarter, exceeding our own expectations. In fact, 6 of our sales centers in the quarter actually exceeded their first quarter 2019 levels, which is very encouraging. A review reveal of our vacation ownership occupancies in this quarter illustrates just how widespread the recovery has been. For example, occupancy at our Florida Beach Resorts average in the high 80% range during the quarter, including nearly 95% for the month of March. Our Colorado and Utah Mountain Resorts average over 85% for the quarter, our South Carolina Resorts ran almost 80% occupancy during March as the weather improved and our U.S. Virgin Island resorts average nearly 85% for the quarter. Orlando and Hawaii, two of our larger markets that have previously lagged, also continued to recover nicely. For example, Orlando, which represents more than 20% of our North America keys, averaged nearly 60% occupancy during the quarter, including over 75% during March. And Hawaii, excluding Kauai, which was operating under quarantine restrictions for the entire first quarter, averaged over 70% occupancy during the quarter, with March averaging nearly 85%. These strong occupancies, coupled with the continued execution from our sales teams, enabled us to achieve 27% sequential contract sales growth in the quarter, with VPGs increasing 21%, even with first-time buyer sales becoming a larger portion of the overall sales mix. Adjusted development profit margin was in line with the first quarter 2019 levels despite having two-thirds of the contract sales, illustrating the benefits of our business transformation work and synergy initiatives.

Thanks, Steve and good morning everyone. Today, I am going to review our first quarter results, the continued strong recovery across all of our businesses, the strength of our balance sheet liquidity position, and our second quarter expectations. As Steve noted, we had very occupancies in many of our key markets with our two largest, Orlando and Hawaii, improving nicely, illustrating the resiliency of our leisure focused business model. Reviewing the performance of our segments this quarter, starting first with our vacation ownership business, when the quarter began, our sales centers in both California and Hawaii were still closed due to government restrictions. But with the California restrictions being rolled back by the end of January, occupancies quickly started to improve. Overall, as tours grew sequentially and VPG improved compared to the fourth quarter, contract sales increased 27%, even with first-time buyers representing a larger portion of our sales mix. As I mentioned on our earnings on our last earnings call, we knew revenue reportability was going to be a headwind in the first quarter. So while contract sales grew nearly $50 million on a sequential basis, development profit only increased $6 million as we do not adjust for reportability when calculating revenue or adjusted EBITDA. Adjusting for the impact of reportability, our development profit would have nearly tripled on a sequential basis to $40 million and development profit margin would have more than doubled to 21%. As a reminder, since reportability is just timing, the revenue and profit from these sales will be reflected in our second quarter earnings. Rentals also improved nicely in the quarter with revenues up 29% sequentially, including 14% growth in transient rate. As a result, our rental business generated a $5 million sequential bottom line improvement as leisure travel and rental occupancies continue to recover. The stickier revenue businesses within our vacation ownership segment also performed well in the quarter. Resort management profit increased 3% sequentially, illustrating the stable nature of this business. And financing profit was unchanged compared to the fourth quarter despite a declining notes receivable balance reflecting lower interest expense and the benefit of our synergy and cost saving initiatives. Delinquency rates continue to improve across all of the Marriott brands, and we’re not only lower than the prior year’s first quarter, but we’re below 2019 as well. Adjusted EBITDA on our vacation ownership segment declined $5 million sequentially to $68 million despite the $26 million impact from negative revenue reportability, reflecting the strong recovery in contract sales and rental revenue as well as our business transformation efforts and other cost savings.

Thank you. Our first question comes from the line of David Katz with Jefferies. Please proceed with your question.

Good morning, David.

Good morning.

Hi, good morning everyone. Thanks for taking my question. One of the things we would love a little more color on is thinking about a recovered new development margin run-rate level once we get through all of this and not necessarily, John, looking for a specific number, but if you can help us or guide us to how to get there on our own, I think that would be helpful?

Sure. Yes, I think I will do it in terms of opportunities as well as potential risks, right, as you think about the development margin. Obviously, it’s the two expenses if you will are your marketing and sales costs and your product costs. Given where our product cost is I would say that we don’t have a lot of new development or commitments, new product. We have got what we have got on our balance sheet. So the mix of over the next couple of years could be slanted more towards some required inventory, which we know comes in at a lower price. So, I would say if anything, there is probably some opportunity right from product cost, whether that ends up being a point or two or something, but there could be some opportunity on the product cost side. I think if you go to the marketing and sales costs, we have obviously been doing a lot in terms of our transformation and synergy initiatives. A lot of the – but a chunk of the $200 million we expect to get in run-rate savings comes in marketing and sales. Some of that’s more in the fixed costs and overhead and things we have put in place and that’s what you are seeing now. I mean, when you look at our development margin and our marketing and sales costs, even though our contract sales in the first quarter were a third less right than they were in ‘19, we got back to a very similar development margin. And a lot of that’s on the fact that we have been able to leverage some of those marketing and sales costs as we have done some of the synergy savings. I’d say on the offset, the other opportunity, like I said on the digital side, as well sell more packages, the ability to acquire first-time buyers, hopefully at better pricing going forward still to be determined, but it’s an opportunity, right? That’s something that is there. And then I think on the negative side, David, obviously there is a lot of reports out there that the costs of some more towards hourly people, but getting people back to work, things like that, to be determined, right? Are we going to see some wage cost inflation, things like that? My sense is maybe some of that, but I think we have – I would say when you put it all together, I think we have more opportunity than then cost increases around some of that, right? So those kind of give you the components about how to think about it.

Hi, David, it’s Steve. Just a little bit more color if I could, on a couple of things, one of which about the, wage cost increases, keep in mind the majority of our associates in the field are our associates that are paid for by the condominium owners, the timeshare owners, through their maintenance fees. So our exposure there is relatively limited. There could be a little bit of cost creep on the sales and marketing side, but we don’t think that’s material. And then pandemic, no pandemic, I mean, the name of the game in terms of optimizing your development margin is always around, yes, you can try to get a little bit of an improvement in your product cost, but it’s all about marketing and sales and that is constantly looking at your channel mix, optimizing those channels that give you the highest yield and the lowest cost and stepping away from those that are the converse. So – but I think John articulated it very well.

Perfect. And my follow-up, thank you for that, is with Welk now closed, there is always some little surprises. Some may be good, so may not be – May be less good. Can you talk about any that you may have come upon so far?

Yes. I mean I think from the positive side, which I guess makes sense, I mean, their recovery that we’re seeing in their business is probably a little bit faster than our recovery, right? They didn’t have the international exposure like we have, right? Not a big part of our business, but we are seeing their sales of similar VPG trends, things like that, but quite frankly, a little bit better in terms of how quickly they are starting to come back. So that’s been a positive thing. On the negative side, I’m not sure we’ve found anything that I would say – not saying we won’t, but we haven’t found anything negative that we see like, my gosh, we didn’t realize that. So it’s been great. We feel even better the more we get into the integration work and working with the wealth management team and kind of forming the new Hyatt business, if you will, just gives me more excitement about what this is going to mean for our growth opportunities going forward.

Super. Good luck. Thank you.

Thank you, David.

Our next question comes from Patrick Scholes with Truist Securities. Please proceed with your question.

Hi. Good morning everyone.

Good morning.

Apologies if I missed this first question in your prepared remarks on that $320 million to $340 million in second quarter expected contract sales but how much do you expect the Welk acquisition to contribute to that?

Yes, I mean, within the range. Call it plus or minus $25 million in the quarter. So about 10% of the – 45% – it’s about roughly 10% of the growth is from Welk. The other is organic, if you will, from our existing legacy MBW.

Okay, thank you. And do you see that percentage similar for the remaining quarters of the year?

In terms of the – to be determined, obviously we are not getting into – But yes. I mean if anything, I would expect that if that’s what we do on the second quarter, there should be some form of recovery, right? In the relative scheme of things, right, not big numbers for all of our contract sales, but I would expect that hopefully $25 million should continue to come back. I mean we did disclose, I think, as a point of reference, Patrick, that pre-COVID in 2019, Welk reported, I think, roughly $123 million of contract sales so that kind of gives you where the business was back pre-COVID. Just as once again, a little bit of a baseline as to what we’re trying to get back to here in the near-term, right?

Okay. Fair enough. And then my second question here, certainly sizable M&A of Welk, that’s not your first rodeo in M&A, with the acquisition of Interval several years ago, what would you say are the top one or two most important learnings or best practices from that type of M&A that you see carrying over to the acquisition of Welk? Thank you.

Patrick, this is Steve. I think first and foremost, having a well thought out plan of integrating the leadership of both the Welk organization and our organization into a seamless team so that we can keep focused on all the right things. I think the next thing that certainly comes to mind is channel mix. Looking at each channel to understand where, by virtue of some of the things we do, versus some of the things they do, where there is some opportunity for improvement. And then this is going to sound a little soft, but it’s really important. It’s making sure that the cultures are well aligned. I’m sure you have heard countless examples of where companies have made acquisitions and ultimately the cultures don’t line up and these don’t – things don’t turn out well. I think we did a very fine job with the Interval acquisition, and I think we’re on a great track and a great pace for the Welk acquisition.

Okay, thank you. That’s it.

Thank you.

Our next question comes from Brandt Montour with JPMorgan. Please proceed with your question.

Good morning.

Good morning everyone. Hey, guys. Thank for all the details this morning. Just quick question on the sort of the outlook and the tone of the outlook, I mean your guidance obviously implies you’re getting most of the way back to 2019 levels, even backing out the incremental contract sales from Welk. So I guess my question is how should we think about the cadence from here? I know that you’re not going to give guidance, but my point is that it sounds like you think that international is going to take a little bit longer. So should we expect a little bit of a plateauing and those – that one piece to just take longer and the core business to sort of fully recover, maybe even in the near to medium term? Is that the way we should think about it?

I think that, keep in mind when we gave you the 20% increase over the fourth quarter in Q1, that included really below our expectations for both Europe and Asia Pacific. A lot’s been written and I’m sure you’re very well aware of some of the travel restrictions, etcetera, that exist in both parts of the world there. And I expect that will continue. So if anything, the 27%, I don’t have the number off the top of my head, would have been greater had it not included those two component parts. I think you should think about, and certainly our hope is, that the rest of the system will continue to grow sequentially and there will still be some drag, as I said, on the international stuff. The other thing that I would point out everybody would like to see us be back at 2019 numbers at the end of the year, there are still a couple of other things in play here. Linkage, which you know is where source customers staying at Marriott-affiliated or now Hyatt affiliated properties and coming to take tourists with us, they are going to be slow to come back because of hotel occupancies, etcetera. And so I think there will be some drag there, but generally speaking, I think the way for us to characterize our view is that we are very optimistic about what we think the second half of the year holds and starting actually, continuing here in the second quarter and then – but there will be a few things that we will have to continue to work against to try to offset some of that other stuff.

Okay. That’s helpful, thanks for that. And then a question on VPGs, obviously a really strong step up quarter over quarter and you mentioned that was despite unfavorable mix or let’s say a diluted impact of VPG from new owner sales. So I guess the question is how did that step up, right? Was it closed rate, was it location-based mix? What drove those numbers just so we can try and get a handle on how it should normalize from here?

Yes I’ll give you a couple of stats for what they are worth. So our contract sales in Q1 for owners was 74% and first time buyers was 26%. Now the good news is that first time buyer mix in Q1 was actually 4 points better for first time buyers than it was. So it was 26% versus 22% in Q1. Tours in a similar fashion, if you look at a quarter-over-quarter basis, owner tours actually were down 3% and first time buyers, were up 3%. All of that is a function of resort occupancy and people being in market. As you get more people in market that are non-owners, we have an opportunity to talk to them about trying to make sure that if they are interested in taking a timeshare tour and becoming an owner with us, we try to do that. As occupancies continue to improve, as previews continue to come into the system where people who have already bought a package that are not an owner, they become a first time buyer. That’s where this shift will be. You may recall that as late as 2019, I think we were at roughly 60-40 owners to first-time buyers on a percentage basis. And I think we are inching our way there. It’s going to take a while, but I’m encouraged by what we see. And just to close the loop, obviously VPG is on first-time buyers are lower because of a lower close rate than they are for owners. So that’s where you get the negative drag on VPG for first time buyers. But ultimately the best thing for our system is to get more first time buyers into the system, grows the system and allows us to give them further upgrades later on. And all the other things that come along with that.

The only other point I’d add is just the mix, Hawaii became a bigger mix in the first quarter versus the fourth quarter. And Hawaii generally comes with a higher VPG, right? So there was a little bit of mix in terms of that location piece.

Okay. Thanks for that guys. Appreciate it.

Our next question comes from Chris Woronka with Deutsche Bank. Please proceed with your question.

Good morning, Chris.

Hey, good morning, guys. Thanks for all the details and taking the questions. So maybe we could drill into a little bit on the spend patterns from – Not so much on VPG, but on actual dollars realize. And the question is really just given how healthy the consumer is, are you seeing a like for like customer, whether it’s an existing customer, I guess it would have to be an existing customer. Are they spending more than they might have in 2019 or are new, first time buyers spending more than first-time buyers did in 2019 when they make a purchase?

We’re not seeing any particular evidence of that. What you have seen is obviously as our honer mix of sales vis-à-vis 2019 has gone up, they are adding more points to their portfolio than they may have done in the past. However, they are in smaller slugs. So the actual average sales price of a first time buyer or of an owner is still lower than what you’re getting the first time buyer. First time buyer, average sales price is up, but not materially different from what we saw before. And we’ve not seen really any inflection point in terms of things like FICO scores or anything else that’s notable that we can point to that would suggest to you there is something that we haven’t seen. The great news is our owners continue to like to buy more of our product. We think that’s a very good sign but like I said, nothing, we’re not seeing bigger checks or something like that as a result of something in the economy.

Yes. I think where you see it more Chris is in the closing, right? If that’s people, not necessarily people spending more on average, but more people buying more. In terms of closing more people, whether that’s owners or first time buyers. Maybe that’s some of the pent up demand, maybe that’s our product form resonating even more in a COVID world in terms of the size of our units and the amenities and all the things we’ve talked about in the past, but you are seeing it there obviously with the higher VP driving it, which is generally higher closing efficiencies.

Okay. Yes, very helpful. And then just to follow-up on the progression of the revenue recognition, do you guys expect that to kind of fully normalized by the end of the year or do you think that obviously could potentially bleed over into ‘21, even though it should, I guess be less of an impact quarter by quarter, right?

Yes. Well, the assumption, remember Chris, is quarter by quarter it’s if your contract sales in a recovery, are continuing to increase sequentially, on average, it just means until you get to back to more of the seasonal quarters, right? And just normal growth, you are going to have negative reportability from that recovery, right. So what you saw, right. $50 million increase in sales, a lot of that being weighted in the first quarter in March, as things progressively got better, we just guided even higher sales in terms of contract sales for the second quarter. The implication is – That’s why we said, and that was standing that reportability will get recognized. You are going to have the higher contract sales you’re still going to have 10 to 15 million that will get pushed into the third quarter and then not giving guidance for the third or the fourth quarter, but if those continue to grow. So if – not saying we will, if we got back to a more normalized fourth quarter contract sales, right? Then I think you’d start to get back to more of the seasonal reportability like we’ve always had where you’re on a full annual basis. Your reportability or negative reportability would essentially be your growth year-over-year, right, a percentage of that. So unfortunately it’s just because of the recovery, that’s what will kind of continue to get that continued negative reportability so we get back to more normalized sales.

By virtue of timeshare accounting and I’m certainly not the expert, John is, but essentially lose the last 2 weeks of the quarter in terms of contract sales. It may be a little bit more, but generally speaking, because you have to get through the various hoops to make sure that it’s revenue to be recognized in the light. So you will always have some carry over from the end of the year out of ‘21 into ‘22. Our belief is, as we’ve seen in the past, is that generally unreportable sales that happened in the first part of the year by and large come back through before the end of the year but you always still have some of that.

Right. Okay. Understood. Very helpful. Appreciate that. Thanks, guys.

Sure. Thank you.

Thank you.

We have reached the end of the question-and-answer session. At this time, I’d like to turn the call back over to Steve Weisz for closing comments.

Thank you, Rob. Thank you everyone, for joining our call today. As we’ve always known, whether it’s to relax, spend time with loved ones or see new and exciting places, at their core, people want to vacation and being at a business whose sole products enable these experiences is a great business to be in. So, while the past year has been difficult for all of us and it’s also been a reminder of just how resilient our business model really is, the review of our first quarter gives you a sense of that. We grew trying to track sales 27% sequentially beating our own expectations. Interval exchange transactions increased 17% year-over-year. And our adjusted EBITDA would have grown 47% from the fourth quarter, where it not for revenue reportability, which is just timing. Looking forward, people are flying again, owner confidence is at a post pandemic high and occupancies at our resorts are strong and growing. 74,000 customers who had purchased the tour package from us have already booked a vacation for this year. While our total package pipeline continues to grow, and we currently have 13% more owner and preview reservations on the books for the second half of this year than we did at the same time in 2019, illustrating the pent-up demand we think is starting to manifest itself. As always, thank you for your interest in Marriott Vacations Worldwide, take care of yourselves and finally, to everyone on the call and your families, stay safe and enjoy your next vacation.

This concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.