Greetings, and welcome to the Marriott Vacations Worldwide Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Neal Goldner, Vice President, Investor Relations. Thank you, Neal. You may begin.

Thanks, Alicia, and welcome to the Marriott Vacations Worldwide Second Quarter Earnings Call. I am joined today by John Geller, our 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, which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the press release as well as 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 in the schedules attached to our press release and on our website. With that, it's now my pleasure to turn the call over to John Geller.

Thanks, Neal. Good morning, everyone, and thank you for joining our second quarter earnings call. We delivered $203 million in adjusted EBITDA in the quarter and reiterated our full year guidance, reflecting the continued demand for leisure travel, the resilience of our business model and the hard work of our associates around the world. The first half of the year was certainly interesting, yet despite all the external noise, leisure customers continue to prioritize vacation and our team focused on what it could control, providing great experiences for our owners, members and guests while executing on our modernization program. Exiting the first half of the year, our business is well positioned. We're the only vacation ownership company focused solely on the upper upscale part of the market, our owners have a median annual income of $150,000 and more than 80% of them do not have a loan on their timeshare. So we are confident they will be vacationing with us. And our exchange business includes most of the top- tier names in the timeshare industry. Quickly reviewing the quarter, we delivered nearly 90% resort occupancy with strength seen in Maui, Coastal Florida and the Caribbean, while Vegas was relatively weak. We made further progress on our modernization initiative and remain on track to deliver $150 million to $200 million in run rate benefits by the end of 2026, with half coming from revenue initiatives and the other half coming from cost savings and efficiencies. As we've talked about, the second quarter started off soft, but trends improved as we progressed through the quarter. As a result, contract sales were down less than 1% for the quarter, an improvement compared to Q1. First-time buyer sales were up year-over- year, our fourth consecutive quarter of higher year-over-year first-time buyer sales, and I'm…

Thanks, John. Today, I'm going to review our second quarter results, our balance sheet and liquidity position and our outlook for the year. Contract sales were down less than 1 point with 2% higher tours offset by lower VPG. First-time buyer sales increased 6%, driven by higher tours and higher VPG, while owner sales declined 4% on lower VPG. As you know, first-time buyers typically carry a lower VPG than owners, so the growth in first-time buyer sales negatively impacted VPG in the quarter. Our sales reserve was 13% of contract sales in the quarter, with delinquencies declining 50 basis points sequentially and 110 basis points year-over-year to the lowest levels in 2 years. For the full year, we expect our sales reserve to be in the 12.5% range. Development profit more than doubled compared to the prior year, reflecting last year's $57 million net sales reserve adjustment. Excluding that, development profit declined 11% year- over-year due to lower VPGs and higher marketing and sales costs, partially offset by lower product costs as a percent of revenue. Total company rental profit declined $7 million or 16% to $35 million, driven by increased unsold maintenance fees and marketing expense, partially offset by higher ADRs. Management and exchange profit increased 3% to $98 million, with increased revenue in our Vacation Ownership segment, partially offset by lower exchange revenue at Interval. Financing profit increased 7% to $53 million. Corporate G&A was flat, excluding the $7 million of lower variable compensation related to the sales reserve adjustment last year. And adjusted EBITDA increased 29% to $203 million, with margins improving 360 basis points as we lap last year's sales reserve adjustment. Moving to the balance sheet. We ended the quarter with leverage of 3.9x and $800 million in liquidity. Our 0% convert matures in…

[Operator Instructions] Our first question comes from the line of Ben Chaiken with Mizuho.

Just would love to dig in on contract sales for a moment. From what we can tell just based on some of the commentary you gave last quarter and intra-quarter, it seems like June contract sales were positive, maybe in the low single-digit range. Was there -- I guess, is that correct? And then was there -- is that a sequential acceleration versus May? Or was it more comp related? And then just to confirm, did you say July was better than June? Did I catch that right?

Yes. July contract sales were up slightly from June. Going back to your other question, yes, June was up about 3% year-over-year. And sequentially, it clearly improved because as we had talked about, we were down 4% in April. We said that on our last call, and we were down 3% in May, which we didn't say how much, but we had said we had gotten a little bit better. So there was some acceleration. June was a bit of an easier comp year-over-year. I would say that. If you remember last year, that's where we saw some of the first-time buyer headwinds. But net-net, good acceleration as we came through the quarter and down a little bit less than 1%.

Got it. Understood. And then I believe in the prepared remarks, you mentioned a 12.5% loan loss provision is the expectation for the year. Can you just remind us, how does that compare to your previous expectation? And then maybe parallel to that, I believe you mentioned that the maintenance fees should be flattish in '26 in part because of some of the modernization initiatives. Do you think that will show up in -- I guess, like theoretically, should that show up in an improvement in loan loss provision?

Yes, Ben. So the 12.5% is about 0.5 point higher than our previous guidance, which was about 12% for the full year. The modernization and the lower maintenance fees, we certainly, if you go back a couple of years, I think some of the delinquencies that we had were attributable to the higher-than-normal inflationary increases or the higher inflation. So we do think that will help going forward. But the loan book is in good shape, as we talked about, with delinquencies down to really the lowest levels in 2 years, both on a sequential and a year-over-year basis being down pretty materially 110 basis points year-over-year on the delinquencies. So we feel good about where the loan book is.

Yes. Keeping the maintenance fees not -- flattish, just big picture, that obviously helps with the value proposition, right? Maintenance fee is a component of the long-term cost of prepaying or buying timeshare. So everything we can do to continue to enhance the value proposition, we think it helps from a sales perspective, hopes from an owner satisfaction perspective, should have some impact, hopefully positive on our loan loss. So it is and will continue to be a focus.

Our next question comes from the line of Patrick Scholes with Truist Securities.

Certainly, flattish maintenance fees, welcome news after -- I think I was up mid-teens a couple of years ago, but definitely attest to the value proposition there. A couple of questions. I've seen some headlines here about an expanded owner benefit, that being ability to use Club points to directly book stays at thousands of hotels around the globe. Is that an earnings needle mover for you folks? Will that actually show up in EBITDA growth? Or how do we think about that?

Yes. No, it's really more optionality for our owners, Patrick. Before, we had a couple of hundred Marriott hotels that we offered people to use their ownership points to book into. It was a bit of a manual process you had to call. And this really automates that, but more importantly, opens up most of the Marriott system or resorts where, like I said, it was limited. Nobody -- and I've said this before, exchange options give people additional ways to vacation. They're never going to be the best value option for an owner. That's always going to be staying within our 120-ish resorts around the world because, right, you've got to take those weeks, pay for the vacation and then we've got to rent it to offset the cost of the owner's vacation. So there's value leakage from an owner perspective. But it does give the owner just more options if they want to stay outside the vacation ownership system.

Okay. So sort of add that into the value proposition of the product. A follow-up question, and then I'll hop back in the queue. I think I heard you mentioned you were precluded from buying shares in the most recent quarter. Can you provide any color on why that was?

Yes. No, like any time, there can be blackout periods for different things. So we've never publicly -- we've had them in the past. We've never publicly commented on when we're in the market, when we're not in the market. We just thought because early on in the quarter, obviously, the stock price was very low on a relative basis, and we were blacked out at that point. So going forward, we'll continue to be opportunistic blacking out -- or excuse me, buying back shares as we look at the right opportunities.

Our next question comes from the line of Brandt Montour with Barclays.

So I wanted to circle back on the contract sales commentary earlier in the guidance -- or sorry, the June, July commentary. And I think that, that was pretty clear what you were saying, John, about June through July. But it did feel like trends got better. The contract guidance -- contract sales growth guidance you guys gave was unchanged. Just curious if that -- if you feel any better about that guidance range? Or was that just the sort of acceleration month-to-month that you had already sort of baked in?

Yes. I mean we felt at the midpoint of, call it, down 1.5%. That's where halfway through the year, we're still down. And obviously, we were down in the second quarter. So we're hoping we do better as we move through the year, but there is still some broader macro uncertainty. Obviously, you had the jobs report stuff last week, things like that, that probably keep us a little bit on the -- we got to continue to move through the year and deliver on the contract sales.

Okay. And then maybe for Jason, and maybe I missed this earlier. I think you did say that loan loss provision guidance went up 50 basis points from 12% to 12.5%. I'm just trying to sort of square that against the commentary in the quarter where you said delinquencies were at a 2-year low and that they got better. So why did -- I guess, why did the loan loss provision go up for the year unless I missed something there?

Yes. So -- what we're seeing is a little bit long-term trends, obviously, all going in the right direction, which is great, and we're happy to see, and we've been working really hard at that for obviously the last couple of years. If you look at the second quarter, we did have -- we were kind of up in that 13% range due to -- about half of that was due to higher propensity. There's a little bit of seasonality in there. And then we did have a little bit of higher defaults in our Asia business, about $2.5 million in the quarter. So not big dollars at $2.5 million, but that is about 60 basis points on a contract sales basis. So just for overall context, as we expand our loan book -- we expand our Asia business, that loan book right now is about $150 million on gross notes of about $3 billion. So still a relatively small portion of the overall book. So that's what we saw in the second quarter, and that informs some of the guidance going forward to the [ 12.5%. ]

And we continue to focus, as Jason mentioned, delinquencies are down. They're at a 2-year low, which is all positive. But they're still not kind of back to where we'd like them to be. So hopefully, the trends continue. And if we can continue to get the delinquencies back down to more '22 level before we started seeing some of the issues, that will give us more confidence to take a look at the overall reserve going forward.

Our next question comes from the line of Stephen Grambling with Morgan Stanley.

I just want to clarify, you made this comment about being more efficient around inventory and taking down the amount years on hand. What are the implications to cost of VOI not just this year, but as we look maybe further out? Should we be assuming that, that cost of VOI actually as a percentage of contract sales will come down? Or what are some of the puts and takes to think through?

Yes. So as we -- I think you're referring maybe to the cash flow guidance came down about $10 million on the inventory spending. I think you highlighted that in your note. And then yes, we've been consistent in saying that we want to get our inventory levels down to that 1.5 to 2 years on hand. So I think all of that is consistent with our -- kind of how we've talked about inventory and how we think about it going forward. Also, as we've talked about it, we do see our cost of inventory ticking up slightly over the next few years as the mix of inventory changes, incorporating some of the new inventory that we're purchasing like Waikiki and some of the projects in Asia. So that's what we see over the long term. Again, it's not going to rise very quickly, but we do see over the next 3 to 5 years, probably a slight increase in our product costs going forward, and that's pretty consistent with how we've talked about it in the past.

Got it. Okay. I thought there was maybe something new on the efficiency there. One other unrelated question. Harley-Davidson just signed a partnership with KKR and PIMCO to basically sell a portion of its financing receivables for 1.75x book and also rather than securitize, actually sell to them at a premium. I guess I'm curious, how do you think about the value of your financing receivables relative to book value and maybe the rise of private credit markets and maybe potential other opportunities to maybe be more efficient on the securitization front?

Yes. I'll start and Jason can add anything here as well. We're always looking whether it's our financing business or anything, how do we maximize the long-term value for our shareholders. So we've looked at a lot of stuff with the financing business over there, and we'll continue to look at it. What I can tell you high level, I think our securitizations are a lot more efficient than maybe what you -- Harley-Davidson was doing. I mean we get a 98% advance rate. And I think the real question is how you think about that is bringing in a third party, they've got a cost of capital. What's that going to cost you versus maximizing our profits on our balance sheet. And we'll continue to evaluate all those opportunities. And if it makes sense from a shareholder value creation, we would definitely take a look at it.

Our next question comes from the line of David Katz with Jefferies.

I know this was discussed a bit earlier, but I just want to go a little farther, frankly, getting some questions and some of my own on this with respect to the 50 basis point increase on the loan loss, right? I mean some of the other external data we see seems to be moving in a positive direction. And I think part of the answer earlier suggested more propensity, right? But are you just being conservative in there or a bit more conservative than you were the last time we talked about it? What -- could we just elaborate a bit more?

Yes. David, if you say conservative, I think there is a bit of unknown. Like I was saying earlier, while delinquencies continue to trend better, and we're seeing them as low as they've been in 2 years, they're still higher, right, than they were back in '22. We want to see continued improvement. And then I think if we get that continued improvement, then we'll look at our reserve going forward. So I don't know if you want to say that conservative. It's not really being conservative per se as much as reacting to what we're seeing and getting our delinquencies back down to where we've seen them historically.

Our next question comes from the line of Ben Chaiken with Mizuho.

You had some positive commentary on Maui in the prepared remarks. I guess what are you seeing from a sales perspective? We haven't talked about this in a while because I don't think there's been much to share, but is there any maybe quantitative way to frame where we are versus maybe prefire or where we are in the recovery process? Just some way to gauge.

Sure. Sure. Well, I'll start overall with Hawaii. Hawaii had a strong quarter year-over-year with contract sales were up VPG tours. So it is one of our brighter spots in the quarter. So that's good. I'd say on Maui, a couple of things. I think on the transient side, occupancies were up year-over-year, which was good, and rate was up 8%, 9%. So that was all positive on the rental side. Sales in Maui were kind of flat versus last year. And some of the lingering stuff we have talked about, which is our owners coming in back into Maui, are getting better, but still kind of below where they were, as well as some of the packages. And then also, we've got that repiping project at the Maui Ocean Club, which is taking units out. That will get wrapped up, call it, first half of next year. So a bit of noise out there. And I'm happy to say there was a wildfire that occurred yesterday in Maui that was put out fairly quickly, but that risk is still out there, happy everybody is safe out there, but did impact us. We had to close sales for the day, and there were some power outages and stuff. So something we continue to pray for the best out there. But overall, Hawaii was pretty strong in the quarter on a relative basis. All right. I think that does it for the questions. So thank you, everyone, for joining our call today. We delivered another solid quarter with strong occupancies and increased first-time buyer sales. Our modernization initiatives are taking root, and we have a lot of new plans scheduled for the second half of the year. So we are well positioned to deliver on our guidance this year. We're also making good progress on our modernization program and remain on track to deliver $150 million to $200 million in incremental run rate adjusted EBITDA by the end of next year. On behalf of all of our associates, owners, members and guests around the world, I want to thank you for your continued interest in our company and hope to see you on vacation soon. Thank you.

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