Greetings and welcome to the Marriott Vacations Worldwide Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Neal Goldner, vice President, Investor Relations from Marriott Vacations Worldwide. Thank you. You may begin.

Thank you, and welcome to the Marriott Vacations Worldwide fourth quarter 2023 earnings call. I'm joined today by John Geller, President and Chief Executive Officer and Jason Marino, our 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, 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 reference to non-GAAP financial information. You can find a reconciliation of non-GAAP financial measures and is schedules attached to our press release, as well as to the investor Relations page of our website. Before I turn the call over to John, as you saw in our earnings release last night with four vacation ownership resorts in West Maui, the wildfires had a negative impact on our results in the third and fourth quarter, despite having no physical damage to our properties. We added a table to our earnings release last night to illustrate the impact the wildfires on our business. In addition, during last year's third quarter with the launch of Abound by Marriott Vacations, we aligned the contract terms of vacation ownership sales across our Marriott, Westin and Sheraton brands. We also aligned and combined our accounting methodologies for the reserve on vacation ownership notes receivable for these brands. These changes, which we refer to as the alignment, resulted in a non-recurring benefit of $7 million to last year's fourth quarter adjusted EBITDA. The schedules we provided in last night illustrate what our results would have been in prior year without this benefit. With that, it's now my pleasure to turn the call over to our CEO, John Geller.

Thanks, Neal, and good morning, everyone and thank you for joining our fourth quarter earnings call. As you saw in our press release last night, we ended the year on a positive note, with contract sales increasing 4% year-over-year adjusting for the estimated impact of Maui. We're also very encouraged with how fast travelers have returned to Maui with occupancy during the month of December approaching the prior year. Housing in Maui continues to be a challenge for residents including many of our associates. Fortunately, our operations team was close to fully staffed as we entered the New Year, though only approximately 75% of our sales organization was back to pre-fire levels. Throughout last year we worked with owners to educate them about the benefits of the Abound by Marriott Vacations program, while at the same time our sales executives gained experience selling under Abound. Today more legacy Sheraton and Westin owners are using the Abound program enabling them to experience its many benefits. VPG, excluding the estimated impact of the Maui fires was in line with the prior year. A meaningful improvement compared to where we were just a few quarters ago. And at this point, the impact of the Abound transition is behind us. 2023 was also an exciting year for our Hyatt business. We brought our 22 Hyatt resorts together under the Hyatt Vacation Club brand, unified our customer touch points and introduce the BEYOND program, which provides owners more vacation options. We also expanded our highly successful preview booking engine and we'll continue to replace inefficient off-premise marketing channels with more efficient branded channels. This will enable us to grow towards and increase VPG in our Hyatt Vacation Ownership business this year, allowing us to better leverage our marketing and sales spending. First-time buyers represented roughly…

Thanks, John. Today, I'm going to review our fourth quarter results, the strength of our balance sheet and liquidity and our 2024 outlook. Starting with our Vacation Ownership segment. Contract sales in the fourth quarter declined 2% year-over-year, but increased 4% excluding Maui. VPG down 2% year-over-year, but was unchanged adjusting for the estimated Maui impact illustrating the substantial improvement, we've made since the second quarter. Adjusted development margin increased 160 basis points year-over-year to 33% driven by lower product cost. As we've mentioned in the past, one of the benefits of the alignment is that we do not expect to have the kind of quarter-to-quarter reportability impacts that we used to have. So while we did report a $20 million net reportability benefit in our development profit in last year's fourth quarter, it was only a $1 million adjustment this quarter. As expected, sales reserve as a percent of contract sales increased due to the higher financing propensity and slightly higher reserve on originations as a result of the default trends we've been experiencing over the last several quarters. Delinquency and defaults were each up around 60 basis points on a year-over-year basis, largely consistent with what we saw in the third quarter and we believe our reserve is currently at appropriate levels. Reviewing the rest of our vacation ownership segment, rental profit was largely unchanged compared to the prior year with more keys rented being partially offset by increased unsold inventory expense. Financing profit was largely unchanged with higher interest income offset by higher interest expense and resort management profit increased driven by higher management fees. Adjusting for the Maui impact in last year's alignment benefit, adjusted EBITDA in our vacation ownership segment would have increased 3% year-over-year. Moving to our exchange and third-party management business, higher revenue…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Brandt Montour with Barclays. Please proceed with your question.

Hey everybody. Thanks for taking my question.

Hey Brandt.

Hey. So starting out on Abound, it's good to hear that you guys. Think you're through that. Maybe you could just help us understand the sort of outlook for Abound in the nature of the rollout you have from here, because I think we were under the impression that there were still sales centers that hadn't started selling Abound based on the residual supply of Sheraton Flex product. Just I guess the idea …

Yeah.

Yeah, the idea that there's, sales centers that are used to selling the product that makes sense, are there sales centers that haven't started selling it yet? And so I guess what's the game plan to get them used to, it and what makes you confident that there's not going to be growing pains there?

Sure. Yeah, great question Brandt. From -- yeah, the Abound transition really other than the Sheraton sales centers here in Orlando, everybody has transitioned to it. We still -- as we've talked about have inventory left in the Sheraton Flex product that we got to continue to sell that out, right? So we can get to our one trust concept going forward. But keep in mind all of our legacy products never go away, right? So to the extent we take back some Westin or Sheraton we'll continue to recycle that, right? And we'll have that inventory available for people that might not be interested in the Abound program for whatever reason because they bought the legacy Westin Flex and they want more of that, right? So I think we've got the right balance. And I will tell you for the Sheraton sales centers, that have transitioned they didn't really show a lot of impact right? We saw that a little bit more in some of the Westin sales centers that transition. But like I said the good news is, we've got the VPGs. And as you can tell in the year-over-year numbers right, compared we were essentially flat, right in terms of the VPG. So that gives you a sense from just the whole system. We're seeing good stability and positioning ourselves for some growth here on VPG going forward.

That's helpful. Thank you for that, John. And then, maybe for Jason or anybody, honing in on the rental business it sounds like there's going to there's going -- it sounds like you're implying that rental will be down on a profitability -- from a profitability standpoint this year. Just maybe give us a sense -- I mean when we look back at the rental business back to 2019, 2021 and 2022 was recovering toward that rental profitability number nicely. 2023 looks like it took a big step back even below 2021 on a sort of percent recovery of profitability and then 2024, it sounds like it's going to be even lower. So I guess what's going on in that business from a longer-term lens?

Yeah. At this point we are expecting rental profits for 2024, as we talked about on the last quarter to be down a little bit versus what we saw in 2023. We're obviously working extremely hard to get some growth in that this year, but that will really depend on demand here in North America from an occupancy perspective. So what we saw from 2022 to 2023 was in our higher end markets like we talked about versus our expectations coming into 2023, we saw rental rates in places like Hawaii even Florida Beach -- as we said, travel pattern shifts a lot of your higher-end customer, going abroad, Europe last year. So you saw some of that and with the lower ADRs, you definitely saw some lower occupancies in those markets, and I'm not sure we are any different than any other resorts in those markets. We kind of performed in line, if you will with some of the STAR reports et cetera. So that was some of the shift. And then this year right, as we talked about we've got higher maintenance fees which on the unsold inventory we pay. Part of how the market shapes up we talk about 2024 what's on the books, right? We're a couple of points higher same time last year in total for North America as well as international. So that's a good sign at this point, but it will depend a little bit on some of these higher end markets. And does summer demand continue to come back and are we able to drive our rates et cetera. So -- and then the other thing that we've shifted more. We talk about growing our contract sales and packages, right? We've got over 250,000 packages on the books as we sell that, we use rental inventory to drive package growth. So we've been very successful with some of our different marketing channels to drive package sales. And so there's been a bit of a shift to over the last couple of years of using more of our rental keys to drive contract sales which we think is the right long-term trade-off if you will it's always a balance but to drive the long-term growth of the company.

Great. Thank you.

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

Hey, good morning, guys. So I guess can you guys talk a little bit about finance propensity and whether you're seeing any changes there in response to where rates are or just the fact that maybe folks have a little less cash in the bank or in their pockets. Any change there that you're picking up on?

Yeah, Chris, we're not seeing a whole lot in terms of the propensity that we saw throughout the course of last year. They're a little bit higher than they were in 2022, but we've been running in that call it mid-50s, high-50s propensity here for a few quarters. So we don't really see too many changes coming due to the environment out there as of now.

Okay. Thanks, Jason. And then as a follow-up, John, I know you just mentioned the maintenance fees are a little bit of a headwind on the unsold inventory. Do you have any visibility? I know that's sometimes an issue of like property insurance and taxes especially in Florida but do you have any visibility on that going forward? And then also is there any concern, I guess, if that ultimately -- those maintenance fees to the customer not on your unsold inventory, but on the owned inventory that becomes a tipping point for some folks?

To start with your last question, I guess, it could. Let me give you a little perspective though in terms of right now with if you're a first-time buyer, right, you come in and buy our product average first-time buyer buys about $30,000 worth of product. Their maintenance fee this year would be $1,350, right? So while the percentage increase is big Chris right and we're working to get it back down in that kind of mid- to low single digits more like we've seen. Even with the higher increases we've seen if you look at it from like 2019 to 2024 the compounded annual average increase is in that 4% or 5%, right? Because you had a little increase because of some of the COVID stuff. And so on an average basis, you have that. But you hit on some of the things property taxes higher insurance. But labor is your biggest cost and maybe a little different than some of our competitors. If you look at the markets we're in, we've got 12 resorts in Hawaii, right? We've got eight in Hilton Head. And in those markets coming out of COVID it was -- we saw the wage increases in a lot of our markets. We're in higher cost markets. We've seen that stabilize, right? So that's a good factor going forward. And notwithstanding inflation is not back to where the Fed wants it that moderation, right? But we're already looking at maintenance fees for next year or -- we're looking for ways to offset increases we've seen and get that back to what we've seen on a more historic level in terms of inflationary increases in the maintenance fees.

Okay. Very helpful. Thanks guys.

Yeah. Thank you.

Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Hi. Good morning everyone.

Good morning.

A couple of questions here. Can you quantify what you think the lingering EBITDA hit in Hawaii is for this year? That's my first question.

Sure. Yeah. That like a lot of question is not an easy question. I mean, we talked about occupancies in Maui, have gotten back close not -- you got to remember, we historically were on a 95%, 96% year-round occupancy in Maui, where in January, we're back to 92%. So the outlook is good. We're pretty close to where we want to be. I think you got to think about recovery in Maui high level on contract sales, right? What are we doing at our sales centers and are we getting back there? Because when you start to talk about EBITDA Patrick, obviously our business isn't static, right? You got higher unsold maintenance fees that are going to impact rentals in Hawaii that -- this year that we didn't have last year, right? So it is more about our occupancy is at back to where we want it to be close, right? Rental occupancy is still running a little bit lower than it would have been at last year. So we got to continue to drive transient rental occupancy in Maui. Rates will be what the market are, right? That's what I mean. It's just you're not bridging apples-to-apples, if you're trying to calculate what rates are this year versus last year? And how does that -- because that's not anything potentially to do with the wildfires as much as just demand in the market. So we do expect contract sales, as Jason mentioned, we've got a tougher comp as we go through the year. We expect obviously the easier comp in the second half of the year. And that's where our overhead from a marketing and sales perspective leadership and all that we still retain those people because we are -- Maui is going to come back, right? We're going to be getting sales back to where they were pre-fires as we go through the year. And then the other wildcard I'll put out there, which once again is why our contract sales will be -- we expect them right now to be slightly higher than actuals in 2023. But we have a major refurb at our Maui Ocean Club that was unrelated to the wildfires that starts in the second half of the year, right? So that was always planned and that work will start, which will impact Maui sales unrelated to the wildfire. So contract sales, I think if you go back to the top line even with the refurb project, should be up year-over-year call it 5-ish plus or minus $1 million. But we do expect as we kind of work our way through the second half of the year to be much closer to where we were last year.

Okay. Thank you. And then just two more questions here. When you think about potential for stock buybacks given your guidance for free cash flow you also brought out some $65 million to $80 million of CapEx paid a dividend. Ballpark $50 million a quarter barring any surprises or additional CapEx. Is that a fair way to think about it?

Yeah. I mean, as Jason said in his comments, given our lower EBITDA, our leverage is a little bit higher. Our goal has always been to be in that 2.5x to 3x. We're above the 3x. We're going to continue -- I'm not going to sit here today. I mean -- and say yeah, we're going to return all that capital. As Jason said, we're going to evaluate right in terms of do we bring down debt a little bit as we go forward here as EBITDA recovers or not, right? That's the plan. Our goal is to get back to that 3x through a combination of EBITDA growth and potentially paying down some debt. The good news is, when you look at that free cash flow as well as what -- we'd expect to grow free cash flow next year, we can do both, right? I think we can pay down some debt and continue to return capital to shareholders which we think is the right balance and that will be based on facts and circumstances as we go forward.

Okay. Thank you. And just last question. It looks like G&A was up about a little over 30% for the quarter you may have talked about it in the prepared remarks why that was can you just remind me, number one what was driving that increase in G&A? And what's a right way to think about it a quarterly run rate going forward for the year? Thank you. That's it.

Yes. Thanks, Patrick. So, yes, in our prepared remarks we did talk a little bit about what drove the $20 million increase year-over-year. We had some call it more onetime transition costs moving our IT service providers. We did have some timing and some incremental project expense and then we did see some wage increases year-over-year. So that was really the bulk of it. Some of that is not really a good run rate number going forward. So I would look more towards the guidance in terms of G&A. We're going to see a little bit higher G&A next year due to the return of the variable compensation and that's the way I would think about it. I wouldn't look to Q4 as a run rate.

Okay. Thank you for that information.

Thanks, Patrick.

Thank you. Our next question comes from the line of Ryan Lambert with JPMorgan. Please proceed with your question.

Hi. Thanks for taking my question. Just going back to the IT spend real quick. And you talked about how some of that was related to transitioning providers and some was more investment related. Can you talk about what kind of enhancements that spend is driving? And then after that I have a follow-up. Thanks.

Yes. So as we've been talking about modernizing our operating platforms that's a lot of the continuation that you see in terms of the spending that we did in Q4. A fair amount of this is still a little bit foundational, but it's all in an effort to really enhance the self-service and our data analytic capability. So self-service for both the associates as well as the owners in terms of bookings searching and things like that. So that's really where the bulk of our spending was in Q4 from a project standpoint.

Thanks. And last quarter you kind of called out a bit of a difference between the higher-end and lower-end customer spending patterns. Has this gap kind of changed at all why while they are contracted in any meaningful way?

What was the -- I'm sorry what did we call out last quarter that you were referencing?

Just kind of the bifurcation between the higher and lower end specifically to referring to the FICO bands is that different at all?

No. I don't think we're I'll defer to Jason a little bit that we haven't really seen any changes in our FICO, average FICO scores and where the loans are coming from. As we've always talked about our marketing because we do direct marketing and we're looking for certain customer demographics right in terms of household income and people that can afford our price point that -- when people show up to our sales centers because we don't do OPC off-premise and things like that they're usually very well qualified and that's why we've always had a 720, 730 FICO score. So I don't I'm not aware of any ships and things like that. That's been pretty consistent over 10 15 years.

And when you look at our average transaction size across the board they increased slightly over the years mostly due to the pricing increases that we've implemented fairly consistently. So average transaction size doesn't really change too much for us as we look forward.

Thanks.

Thank you. Our next question comes from the line of Shaun Kelley with Bank of America. Please proceed with your question.

Hi. Good morning, everyone. Thanks for taking my questions. Just wanted to go back to some of the core underlying drivers for the contract sales if we could. So I apologize I think I missed a part of this in the prepared remarks, but you did talk a little bit about the breakdown between or anticipated breakdown between tour flow and VPG to get to the 6% to 9%. Could you just give us a little bit more color? And specifically I think obviously if we assume some tougher comps in Q1 which I think you alluded to or certainly the -- or maybe even in the first half it implies some pretty significant acceleration. Should we see -- in the second half should we see that more in tour flow I think particularly around Maui in the second half? Or how should VPG balance in there too do we also see some mix benefit from Hawaii coming back online in the back half too?

Yes. Yes. You didn't miss anything. We didn't guide any -- around VPG and tour growth. So I will say high level, we expect to get growth in both, right? That's the plan. Generally, we probably should get some higher tour growth than VPG, if you think about it that way. And as you hit on and Jason mentioned, yes, you got a tougher comp in the beginning of the year, just not only from the Maui impact, but if you recall, coming out of 2022 into 2023, I mean first quarter last year our contract sales were up 10% over 2022, right? So you do have some tougher overall comps in the beginning of the year. And as we talked about last year, you saw VPGs trend down a bit as you went through the balance of the year. But then as we got into the third and fourth quarter, you really got that stabilization and we feel good that that's where we have the ability to hopefully push some pricing and drive VPGs. The other place we'll continue as we mentioned on the call and we didn't guide growth but we had international contract sales grew 50% last year. Now, it's only 10% of our business versus North America in terms of how to think about that. But, Asia is still recovering in terms of coming out of COVID and so we expect stronger growth in some of our international that's going to be driven by tour flow and some VPG as well. And then, within the Hyatt business, as we talked about, as we brought together the Hyatt and legacy Welk portfolios, and we shipped in terms of our marketing channels and driving some growth that way. So there's a lot of moving parts in there. But when you put it all together, we expect first half of the year to be little bit less growth given the tougher comp. Second half, as you mentioned, as well you had the Maui fires and obviously that impacted contract sales $50-plus million in the second half of the year. So, that should be helpful from an easier comp and superior growth year-over-year.

And my second question would just be are there any constraints on the tour flow side that are company specific? And the reason I ask is, we see the peers they've been growing tour flow low-double-digits maybe even a little bit better than that over the last three – two, three, four quarters. VAC is obviously -- and again, a lot of noise for Maui. So, I appreciate that it's not entirely apples-to-apples, but it's been much more in the low-single-digit even in the 4Q even if we add back Maui, you're only at 4% versus I think one of the peers, which was low double digit. So, to accelerate that, are there any constraints any issues with inventory or challenges to do so? Anything -- or is it basically just turning on tour channels? And how do you not compromise that higher-quality guest and purchaser that you're looking for and still able to drive that type of level of growth?

Sure. Yes. So for us, when you think about where our tours come from like we've talked about in-house our owners, first and foremost staying at our resorts. The good news is to get owners to take towards get them interested maybe in buying more you have to have stuff to talk to them about, right? So, things like the Abound program and coming in and getting tour capture rates there. Announcing new resorts like Waikiki, that's opening later this year. Charleston and Savannah more resorts in Asia Pacific, right? That's always going to be how do we continue to drive those tours. Rentals, right? When we can get tours from people that are renting our product. They're -- they can be very good tours, because they're usually paying a lot to rent our product and then they see the value proposition coming off some of the -- what they're paying to rent, it makes a lot of sense. So, we're always going to continue to look at what we call our capture rate and drive in-house. I mentioned packages and we continue to increase tours by taking rentals that we've otherwise rent on the open market and sell packages into that, right? And we're growing our tour flow on the package side. And then the stuff that happens in our markets like linkage, we still have linkage opportunity in a lot of our markets. We do what we call road shows and events, which can drive tour flow. We continue to focus on driving tours through virtual methods that we learned to do very well coming out of COVID. So, you've got a lot of channels. But at the same time, yes, while our tour growth isn't 15% you haven't seen our VPG drop it's been flattish, right? And this is where I think as we talk about the investments in technology what we're doing with sales force, how we're investing in data and analytics for us, it's all about focusing and getting the right tours, right to drive those VPGs. And that's where I think the opportunity continues to be, how do we open up the funnel get more folks market to the right folks and then be able to sell to them. And that's always going to be the focus here as we go forward.

Thank you, very much.

[Operator Instructions] Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.

Hi. Good morning everyone. Thanks for taking my question. I wanted to just circle -- you've given us a ton of detail and I appreciate that in the outlook. What I wanted to just drill down a little deeper on is in the release and in the opening remarks that Abound the conversion is behind us. And I wanted to see, if there are some specific data points or specifics around how -- what's behind that and how do we know so to speak.

Sure. VPG is always the best data point David, when you look at what -- VPGs were down in the second quarter and why we were talking about the transition to Abound even before the second quarter. We said any time you launch a new product, there's transition impact, owners understanding the new product, the salespeople notwithstanding a lot of training and retraining, selling a different product and owners -- like we talked about, they bought a different product. Now you're selling them something new. And that's where you saw the impact in Vistana, I want to say, all of the VPG down in the second quarter last year was the transition, but I think our VPGs are down 15% year-over-year. It was a tougher comp, but I think we talked about at the time our Marriott non-transition sites, they were down probably low single digits, right? And so, fast forward we saw third quarter we talked about it sequentially, those legacy sites we saw the VPGs bounce back up in the third quarter and we continue to see improvement as we got into the fourth quarter. And now when you look at overall VPGs for the system fourth quarter adjusting for Maui, they were essentially flat fourth quarter this year versus fourth quarter last year. And fourth quarter last year was probably a tougher comp, right? Our VPGs from a system were running better. So, that is a combination of all our sales centers, but that's how I feel pretty confident and that we're there and we're moving forward in that softness that we really saw mostly in the second quarter is behind us.

Perfect. The VPG is the focus. And with respect to the IT and analytics investments, can you just color that in a bit more as to sort of what you're getting and why now? And is that something that continues beyond 2024 as well? Or is this more of a onetime focused investment?

Sure. Let's take a step back just not data and analytics, but we're going to continue to enhance our IT capabilities. So what do I mean by that? We obviously have been a company in business for 40 years and we've talked about how you've got a lot of legacy homegrown IT systems, there's a lot better technology. And then as you go forward, we've done a couple of acquisitions who Vistana had their own legacy systems. And while we integrated that and drove synergies, a lot of that work going forward is how do you continue to get efficiencies and leverage our technology platforms and we're going to continue to focus on that. And with those enhancements, whether it's data and analytics, right, getting our IT cost down by, continuing to modernize applications that we're using platforms things like that. That's where we'll -- and it's an ongoing journey. I think it is for any company. Technology changes so fast and there's more and more opportunities to leverage technology. And ultimately, with things like AI right and the ability I think over time to drive more efficiencies in the business and self-service of our owners, it's a huge opportunity I think for us as we go forward. And that, with our new CIO is we're really focused on. Now, are we going to see continued increase in investments? No, I think we're on a pretty good clip and we're going to continue to do things that are really going to either drive efficiencies at the bottom line or top line growth. That's the focus going forward. Q – David Katz: Got it. Thank you very much

Thank you, David.

Thank you. Ladies and gentlemen, I'm showing no other questions at this time. Mr. Geller, I'll turn the floor back to you for final comments.

Thank you everyone for joining our call today. After last year's challenges, it was great to end the year on a strong note. Contract sales grew 4% year-over-year, excluding the impact of the Maui wildfires. International contract sales grew 36%, year-over-year with strong growth seen in both Europe and Asia Pacific and resort occupancy was nearly 90%, even with the Maui impact illustrating our owners and customers' demand to get on vacation. As we move into a new year, the transition to Abound is behind us and we look forward toward growing contract sales this year, driven by a mix of higher tours and improved VPG. We made significant changes in our Hyatt business that will enable us to more efficiently drive tours, grow contract sales and better leverage our marketing and sales spending. Economic indicators remain positive, and our reservation on the books for the summer are up both domestically and internationally. We have realigned our organization to improve our long-term results and we are looking forward to opening our first Waikiki resort later this year. On behalf of all of our associates, owners, members and customers around the world, I want to thank you for your continued interest in the company and hope to see you on vacation soon. Thank you.

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