Greetings, welcome to Marriott Vacations Worldwide Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. At this time, I'll turn the conference over to Neal Goldner, Vice President of Investor Relations. Neal, you may now begin.

Thank you, Rob, and welcome to Marriott Vacations Worldwide fourth quarter 2021 earnings conference call. I am joined today by Steve Weisz, Chief Executive Officer; our President, John Geller; and Tony Terry, our new Executive Vice 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 last night and the presentation we issued to our website this morning as well as our comments on this call are effective only when made 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 Investor Relations page of our website at ir.mbwc.com. It's now my pleasure to turn the call over to CEO, Steve Weisz.

Thanks, Neal. Good morning, everyone, and thank you for joining our fourth quarter earnings call. At the start of 2020, I couldn't have imagined we still be navigating the landscape we have over the past two years. But despite the continued challenges of the COVID pandemic, the past two years proved people still enjoy going on vacation, arguably now more than ever. It also shows we have a resilient business model that's leisure focused and that our owners, members and guests value the time they spend with us. I couldn't be more proud of our associates continued dedication to our owners, guests and each other and how our organization performed this past year, culminating with our highest quarterly adjusted EBITDA since being spun off more than 10 years ago. As you know, we have a long history of supporting philanthropic efforts such as Children's Miracle Network Hospitals, Clean the World, and our Harvest for Hunger campaign. With that in mind, I'm very happy to say we are making exciting commitment with Make-A-Wish to offer unique fellows stays and other memorable vacation experiences for deserving children and their families. We all know how vacations are restorative and invigorating. And we are honored to share our vacation destinations and experiences with those who need the most. With a strong recovery in our business, we were able to restart our long standing history of returning excess cash to shareholders returning nearly $100 million in the fourth quarter, including repurchasing nearly $74 million of our common stock and reinstating our dividend at pre-pandemic levels. And last week, our board approved a 15% increase to our quarterly dividend to $0.62 per share, and increased our share repurchase authorization, bringing our remaining capacity to approximately $445 million. Looking ahead, we see continued strength in our business…

Thanks, excuse me. Thanks, Steve and good morning, everyone. Today, I'm going to review our fourth quarter results and highlight the continued strong recovery we've seen across our businesses. After that, I'll turn the call over to Tony to discuss the strength of our balance sheet and liquidity position and discuss our 2022 expectations. Starting with our vacation ownership business, despite the emergence of the Omicron variant in the fourth quarter, occupancies remained very strong, averaging nearly 90% for the quarter, despite lower occupancies at our European and Asian resorts and tourists grew sequentially. With our product continuing to resonate very well with customers and our tour channel optimization work, VPG increased slightly on a sequential basis and remained well above pre-pandemic levels. As a result, we ended the year on a strong note growing contract sales by 7% sequentially in the fourth quarter to $406 million, exceeding our 2019 levels for the first time since the pandemic started. We grew adjusted development profit by 13% sequentially to $111 million. Adjusted development profit margin expanded sequentially by 160 basis points to 31%, the highest margin in our 10 years since becoming a public company, highlighting the benefits of more efficient marketing and sales spending, lower inventory costs and our synergy savings. Turning to our vacation ownership rental business as I've mentioned previously, as the pandemic progressed and leisure travel began to return, we chose to allocate more of our rental keys to owners and make sure they had ample opportunity to get on vacation. But despite that, we grew rental profit by 26% to $32 million in the quarter with average revenue per key, increasing 14% sequentially. The stickier revenue businesses within our vacation ownership segment also performed well in the quarter. Resort management revenue increased 1% compared to the…

Thanks, John. And good morning, everyone. I too am very happy with our strong results this quarter. Starting with our balance sheet. We ended the year with nearly $1.1 billion in liquidity, including $342 million of cash, gross notes receivable eligible for a securitization of $113 million and almost $600 million of available capacity under our revolver. We also had $4.5 billion of debt outstanding, including $1.9 billion of non-recourse debt related to our securitized notes receivable. Given our strong performance in October, we repaid $250 million of our 608% notes due in 2025. We also returned nearly $100 million in cash to shareholders in the fourth quarter, including the repurchase of $74 million of our shares and paying our first dividends and so pandemic started. In addition, we use $59 million of cash to acquire the remaining San Francisco units fulfill -- our commitment for this capital efficient arrangement. Now let's turn to our 2022 guidance. As you saw in our press release last night, despite the softness we experienced in January and early February due to Omicron. We expect full-year contract sales to grow 22% to 29% this year compared to 2021 with growth coming from a combination of higher tours and continued strong VPG. With that growth our channel optimization work and our ability to leverage fixed marketing and sales costs, I would expect our adjusted development margin to remain well above 2019 levels this year. Moving to our rental business, given the strong leisure travel demand environment, we expect transient keys rented and average revenue per key to be up compared to last year. This should drive a year-over-year increase in our rental profit. However, similar to last year, we do expect to allocate a portion of our rental inventory for owner use to provide them…

Thank you. We will now be conducting a question-and-answer session. Thank you. Now our first question will be coming from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Hi, Pat. Good morning.

Good morning. Several questions here. I know you folks have talked about in the past the trajectory of VPG going down. Is that still the case here going forward, how should we think about that trajectory over the next several years. Thank you.

Arithmetically, one would assume that as you increase the number of first-time buyers, which traditionally have a lower VPG, their existing owners, that when you mix that all together, you get a reduction in VPG. I will say to you that we have been expecting that turn to materialize even as early as the second half of last year and into the first part of this year. And it has not happened. I mean, even though our first-time buyer sales have grown very nicely, we still maintain a very robust VPG with our existing owners. And by the way, the first-time buyer VPG has actually grown. So between those two things, it is not dropped. I would expect, however, that as we get through more first-time buyers and a higher percentage of the mix as we go further, that you'll see some decline. However, we fully expect that VPG for the full-year will still materially outpace what we did and say 2019.

Okay, thank you. Just a question regarding the share count as it relates to the convertibles. The implied share counts for this year backing into it is about 48.6 million. You do have some convertibles that expire roll-off this year the 2022s, what would that -- if we're going to be modeling, say '23 or '24 EPS, what would the implied share count be once those 22s expire because you still have the I think it's a 2026 is left in there.

Yes, the impact of the 22s I think is about 1.7 million shares. So in total, there's about 5 million due to the change in the accounting rules of shares that go into our diluted, the remainder to get you up to 5 million is the $575 million notes, right, so just a little bit of history, right, the existing accounting through the end of '21, we always take a discount, right. And notwithstanding interest on the 230 was 1.5% and on the $575 million notes at zero, interest expense, right is imputed up to the 5% right. So that's what hits GAAP. And then the dilution impact was only if the convert was in the money, right. And it was only I think the $230 million at times had been in the money, but it was about a couple 100,000 shares of dilution impact. Under the new rules, the accounting changes, the whole discount for GAAP goes away, et cetera. So it's essentially cash runs through your GAAP net income, that you're getting the benefit, if you will, right, have higher net income. However, the rule say you have to assume that you converted the debt as of the first of that year, right. And it was outstanding. That's why I put the 5 million shares in there, right. So but you also think about it from a capital perspective, if you're assuming that right, higher share count, well I've got $805 million of less debt, right, and my capital stack, because our corporate debt wouldn't be , it $800,000, less, right or $800 million less for the convertible debt. So just a little bit different accounting. But that's kind of where the accounting rules take everybody for convertible debt on January 1.

Understood, appreciate the update, go back and adjust the models accordingly. I'm all set. Thank you.

Yes, thanks, Patrick.

Thank you. Our next question is from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Good morning.

Hey, good morning, guys.

Good morning.

So you guys talked a little bit in the prepared comments about the increased attractiveness of timeshare with hotel rates, especially resorts going where they are? Have you like formally changed kind of the marketing, I know you like to run through the math with people? Have you been able to kind of formally change those formulas yet to make that argument even more convincing?

When you say marketing, I assume you're talking about when you're talking to a prospect about becoming an owner. Is that right?

Yes, that's right. Kind of that, yes the formal process, we walk through the math.

Sure, I mean typically. And I mean, there's no, every conversation we have with an owner is very much based on kind of a discovery process we use with that owner and things that we accentuate or not do. So no one, no two presentations are identical. But generally speaking, one of the things we talk about is the relative value of owning timeshare over time versus spending time in hotel rooms on a similar type vacation. So examples we've used in the past are, if you were here in Orlando, and staying at the JW Marriott here at Grande Lakes, and you and your family had occupied a couple of rooms, and it was $300 or $350 a night, which now maybe $400 a night based on some of the inflationary trends and everything else, at the end of the -- so you're spending $800 a night on just your accommodations, arguably with less square footage than we'd have in one of our units. Then contrast a week stay there, which for just doing the arithmetic, says that you're going to spend $5,000 and at the end of the day, you're going to walk away with a copy of a receipt and maybe some points here and on your credit card, but that's all you have. Well, if you bought, call it 2,500 points from us, currently, that would cost you about $32,000 plus or minus. So you do the quick arithmetic and say and six or seven year timeframe, when you include the maintenance fee that you're going to pay every year, you're paid off. And then your cost of staying in the system, not just here in Orlando, but your cost of staying in the system is really limited to what goes on with your annual maintenance fee. So to be honest, I mean, some people are far more sensitive to that discussion are going through the mental gymnastics of looking for the -- how many year payback am I going to get? Other people are not, as we've talked about, obviously, our demo for our customers has a tendency to skew toward the higher end. So but there is no question when the cost of alternative stays or alternative ways to vacation someplace continue to go up. I think it makes the argument about buying a timeshare interest, more compelling.

Okay, I appreciate that, Steve. And then I guess the follow-up, you mentioned in the comments, you do think VPG for '22 will still be above '19 as you are building back order flow, the question is, based on what you've seen, maybe past three to six months as the recoveries gain some steam, are you seeing higher VPG from relative to kind of pre-COVID, are the first-time buyers spending more or the returning by the existing owners spending more relative to what maybe they spent? I know, it's a tough question to compare apples-to-apples.

I actually think it's a very good question, Chris. So very good question because I got a statistic right in front of me that I can point to. So let me just give you a contrast of what's happened with VPGs and our contrast. What's happened in the fourth quarter of 2021 versus the fourth quarter of 2019. Our VPGs for first time buyers are up $500 over what they were in 2019. And our VPGs for owners are up $800 compared to where they were in the fourth quarter of 2019. So we are seeing improvement of VPG on both owners and first time buyers, which and part of that is hey, we've gone through continued to go through looking at channel optimization, everything else. I think our sales team continues to be even better, obviously, the economic backdrop, at least prior to yesterday's little adventure from Putin. I think the economic backdrop has continued to be increasingly good. So for all those reasons, we are very, very bullish about how we think VPG is going to play out, at least for '22 and potentially into the years beyond that.

And Chris on that note, the number Steve was mentioning, it's a 21% increase in VPG for the first time buyers and 17% increase for the owners. So those first time buyers are increasing at a faster rate for VPG, which is pretty interesting as well.

Okay, yes, that's terrific. Thanks, guys. Very helpful.

Thank you.

. The next question is from the line of Farshid Javar with Jefferies. Please proceed with your question.

Hey morning. How is it going? Are you guys maybe able to touch on or expand on just the long-term opportunity for Welk, Hyatt. Maybe in terms of relative size of the revenue or EBITDA of the company?

Well, I mean, at a 30,000 foot level, we essentially increased the size when you fast forward when all of our properties are effectively all rebadged and rebranded as Hyatt. We will have increased the size of the portfolio by 50%. And the number of owners by I think it's 80% or 90% is my recollection. Obviously, with that in case so you've -- we've got additional sales centers in that will come into the high end portfolio, which will previously Welk center. We are have been and are continuing to be in the process of making sure that we are trying to reposition those sales centers and the channels that they play in not unsimilar to what we did with the Vistana sales centers in terms of channel optimization and getting out of some of those high cost low yield channels and the like. If you're looking for a specific dollar number, I'll ask John to jump in.

Yes. So just a little bit of background, right when we underwrote and bought Welk, there are 19 pre-COVID numbers was roughly $30 million in EBITDA. What we talked about kind of on an apples-to-apples basis where we could drive development margin improvement, better rental profits, grow contract sales by leveraging the Hyatt brand and all that. Now on a comparable basis, we want to get to call it $60 million to $70 million, though it would take a few years to get there. And Steve walked through in his prepared remarks, all the great stuff that we're launching this year with Welk. As we start the rebranding process, the first one really be, I mean, we're still selling a Welk product today. In the second quarter, the goal is to rebrand the Welk points program, and then have to the high brand and then start to sell that product branded Hyatt right at all the legacy wealth now seem to be highest sales centers at all those resorts. And then start to unlock the benefits that the owners will get. And then over time, as you move through the year, get all the rebranding and then bring the existing Hyatt Club together with the rebranded well. So we haven't really seen a lot of the benefit yet. But what I can report for '21 on we own the business for three quarters. But if we pro-form in the first quarter, it was roughly we delivered about $50 million of EBITDA by last year versus where we want to get to the $60 million to $70 million that we underwrote. So we're well on our way, and we haven't really unlocked a lot of the stuff, right more blocking and tackling, integrating the business, et cetera. So it's going very well. Hopefully, we'll be able to report something more than the $60 million to $70 million as we start to get, more the benefits down the road. But just in the '21 numbers, we saw that development margin in the double-digits were when it was Welk it was call it roughly 5%. So you're getting that flow through there. And then once we get these properties here in the second quarter on hyatt.com, we expect to be able to drive some of the rental income et cetera over time. So I think we're probably a little bit ahead of where we thought we'd be at this point. In terms of the results, we're on track with the rebranding and the timing of all that it's just that we haven't necessarily started to see any of that benefit yet, right? Because that's going to some of that'll start here in the second quarter.

Great, thank you. And then if I can also just ask, what are you guys seeing today or maybe expect to see with just respect to the ABS market for securitization deals, given the rising rate environment?

Yes, well, we're talking to the banks already in monitoring the economic environment right now. Rates are slightly higher, they're still in the two handle range right now. But that changes every day versus what we see. We still have an expectation of doing a couple ABS deals this year. And so that is in our plan going forward. So we will be using that or conversely, we do have a warehouse available that we could use as well.

Yes, I think the one benchmark I'd add to Tony's is, remember the deals we did last year, in the 1.5% to 1.6% those are the best deals we've ever done. So interest rates have increased. But to put it in perspective, at the end of the year, our weighted average securitization rate was roughly 27%, 28% right. So even if rates go up, over a 100 basis points, which is generally what we're seeing right now. You're still if you do a deal in the high 2%, 3% you're still net-net replacing it what's coming off your balance sheet, not 27%, 28% range was something very comparable in terms of your -- how you think about the weighted average excess spread on these deals. So I guess that's the nice thing about how we outperform last year is that, it shouldn't necessarily depending on where we see rates today, cut into right excess or excess spread.

Appreciate it. Thanks for the time.

Thank you.

Thank you. At this time, we've reached the end of the question-and-answer session. I'll turn the call over to Steve Weisz for closing remarks.

Thanks, Rob. And thanks everyone for joining our call today. 2021 proved to be quite an eventful year for our company. Among our many accomplishments, we delivered nearly $1.4 billion in contract sales, invested in new digital initiatives to drive growth in the future, acquired Welk, substantially improved margins, and started to return cash to shareholders again. And we ended the year on a strong note. In our vacation ownership business, we grew contract sales by 7% sequentially in the fourth quarter, exceeding our 2019 levels for the first time since the pandemics started. Despite the emergence of the Omicron variant in the fourth quarter. We're also adding new first time buyers, which is a key part of our strategy, and have nearly 224,000 tours in our pipeline, which puts us in a great position to drive tours and sales this year. In our exchange and third-party management segment, and we'll sign a number of new customers including Disney Vacation Club, then in total add more than 300,000 new members in 2022. We returned more than $100 million in cash to shareholders in 2021. And just last week, our Board approved a 15% increase to our quarterly dividend and increased our share repurchase authorization. We're also investing to provide more personalized experiences for our customers. Sorry, you got to love an Apple watch, I apologize. We're also investing to provide more personalized experiences for our customers, and using data analytics in new and exciting ways to further enhance our business. As the past two years have proven anything. It's the people want to go on vacations and as a company whose sole purpose is providing travelers great vacation experiences. We couldn't be in a better position. As always, thank you for your interest. Take care of yourselves and finally to everyone on the call and your families stay safe and enjoy your next vacation.

Thank you. This conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.