Marriott Vacations Worldwide Corporation

Greetings. Welcome to Marriott Vacations Worldwide Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Neal Goldner, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Sherry, and welcome to the Marriott Vacations Worldwide Third Quarter 2020 Earnings Conference Call. I am joined today by Steve Wise, President and Chief Executive Officer, and John Geller, Executive Vice President and Chief Financial and Administrative Officer. I do need to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the press release that we issued last night along with our comments on this call are effective only at the time issued 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 and the schedules attached to our press release, as well as the investor relations page and the financial information page on our website. It's now my pleasure to turn the call over to Steve Weiss, President and CEO of Marriott Vacations Worldwide.

Thanks, Neal, and good morning, everyone. For some time now, we've been telling investors that we have a resilient business model. Looking at the performance of our stickier resort management, financing, and exchange membership revenues this quarter, coupled with the recovery in contract sales, rentals, and exchange transactions, I believe we took a significant step forward in proving our point. Following the challenging second quarter, when COVID was still new to many of us, our third quarter saw significant improvements in both our vacation ownership and exchange businesses. with revenues and margins delivering meaningful improvement compared to the second quarter. While we still have a long way to go before we fully recover, the third quarter was a major next step in that journey. So let me start with our vacation ownership business. Ever since the start of the pandemic, we have believed a typical timeshare unit with much larger square footage than the average hotel room and more amenities such as full kitchens and laundry facilities coupled with the prepaid nature of our offering positioned us to lead the recovery in the lodging sector. I think our third quarter resort occupancies are proof of that. In fact, not only did we see strong occupancies across many of our drive-to resorts, we also saw occupancies at a number of short-haul fly-to locations as well. To give you a few examples, occupancy at our Florida Beach resorts averaged in the mid 60% range in July and improved to around 70% for September. Our South Carolina resorts ran around 70% occupancy for July and increased to roughly 75% in September. Occupancy at our mountain resorts began the quarter strong at nearly 75% and improved to around 80% in September. And our Newport Coast resort in Southern California had strong occupancy throughout, averaging 80% for the quarter. but the recovery in the quarter wasn't confined to just the continental United States. For example, our Westin Los Cabos resort ran nearly 50% occupancy in September and our US Virgin Island resorts were running roughly 70% occupancy in July and August until the local government shut the island down for visitors for 30 days. Once the closures were lifted, occupancies quickly moved back into the 70% range illustrating our owners' willingness to fly to their vacations. But two of our larger markets, Hawaii and Orlando, continued to be challenged during the third quarter. Orlando, which is one of our larger markets, averaged around 25% occupancy in the third quarter. September did recover to around 30% during the month, and that improvement has continued into the fourth quarter, with October occupancies running in the 40% range. In Hawaii, Occupancies were in the single digits during the third quarter as non-resident visitors were required to self-quarantine for 14 days upon arrival. Hawaii did reopen its stores to visitors on October 15th, and we've seen a gradual build since then, with occupancies averaging in the high 30% range over the last couple of days of the month, with our resort on Oahu already exceeding 65% occupancy this past weekend. With occupancies beginning to improve in June and continuing across the third quarter, we reopened 36 sales centers in July, adding another four between August and September, followed by the reopening of seven Hawaii sales centers in mid-October. This leaves only a handful of our smaller and some urban sales centers yet to reopen. BPGs were again very strong during the quarter, increasing 13% year over year. and North America VPG was up nearly 30% excluding Hawaii, benefiting from the higher mix of existing owners, higher promotions and our decision to bring back our highest performing sales associates first. Tours improved substantially from the second quarter and we had nine sales centers generate at least 75% of their prior year sales this quarter, including two that actually exceeded last year's sales. driven by strong occupancies at those resorts. As a result, contract sales were $140 million in the quarter representing a meaningful recovery from the second quarter. Within the other parts of our vacation ownership business, our stickier management fees delivered 4% revenue growth in the quarter. Our financing revenue declined 9% in the quarter, a sharp contrast to the decline in contract sales Reflecting the recurring nature of this high margin revenue stream. Our Interval International business also experienced a notable recovery during the third quarter. Interval Exchange transactions were up 1% on a year-over-year basis, including a 20% improvement during the month of September. This reflected members' desire to travel, as well as some pent-up demand now that more than 90% of Interval's affiliated resorts have reopened. Active members were down 2% from the June quarter. While member retention improved compared to the prior year, normal attrition was not offset by new members coming from the developer sales channel due to resort closures or their decision to close sales during the pandemic. Average revenue per member increased 22% sequentially from the second quarter, reflecting the recovery in member transactions and getaway rentals. but even more encouraging is the fact that adjusted EBITDA margin for this segment improved 180 basis points year over year this quarter. I view that as an impressive accomplishment in the midst of a global pandemic. Before turning the call over to John, I want to talk about our synergies and our incremental cost savings opportunities which we announced yesterday. The pandemic has caused us to operate very differently. and has caused us to think about what doing business in a post COVID world might look like. We also sharpened our pencils during this time and uncovered additional synergy and cost saving opportunities. As a result, we increased our synergy and cost savings target to at least $200 million, $75 million above our previous goal. We expect these to be permanent cost savings that will not return with volume and will help us drive substantial margin improvement going forward. I'll let John discuss this in more detail in a moment. So now that we've reopened most of our sales centers, let's talk about where we go from here. We still have a few sales centers that haven't reopened and I suspect some of those won't reopen until next year. But with most of our major locations up and running, I expect us to continue to grow contract sales going forward. We expect tours to increase substantially compared to the third quarter driven by a combination of higher package tours and increased occupancies. Interval exchange transactions were up double digits for the months of September and October, which is encouraging. Owner and exchanger reservations for the fourth quarter are roughly 93% of those on the books at the same time last year. Hawaii, which represented more than 20% of last year's contract sales reopened on October 15th with encouraging occupancy trends thus far while Orlando continues to improve. And we continue to see increased bookings for the upcoming holiday weeks with a number of destinations already at capacity for Christmas and New Year's and Hawaii and Orlando looking to be above 80% occupancy with two months still to go. Finally, Our Owner Confidence and Future Travel Survey recently reached its highest level. This survey has proven to be a strong, leading indicator of near-term resort occupancies since it launched in March. In a separate survey, 73% of timeshare owners said they plan on traveling in the next 12 months, with nearly one-third having already booked vacations within the next three months. All of this gives me added confidence in the continued recovery of our business. With that, I'll turn the call over to John.