Marriott Vacations Worldwide Corporation

Greetings and welcome to Marriott Vacations Worldwide Second Quarter 2021 Earnings Conference Call. At this time, all participants are on 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. As a reminder, this conference call is being recorded. It is now my pleasure to turn the conference over to your host, Mr. Neil Golden. Thank you. You may begin.

Thank you, Rob, and welcome to the Marriott Vacations Worldwide 2021 Second Quarter Earnings Conference Call. I am joined today by Steve Wise, 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 last night and the presentation we added 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 the 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. With that, it's now my pleasure to turn the call over to CEO Steve Wise.

Thanks, Neil. Good morning, everyone, and thank you for joining our second quarter earnings call. As a reminder, this is the first quarter with Welk and our results. And we couldn't be more excited about the opportunity it provides us as we look to significantly expand our Hyatt vacation ownership business. Today, more than ever, people want to vacation to see new places, reunite with family and friends, or just to relax. And the products we offer, most with extra square footage in a resort setting, are resonating with them. You only need to look at our occupancies during the quarter to see the high demand for our resorts. And this is translating not only into higher occupancies, but also into new owners with first-time buyer sales growing faster than existing owners this quarter. With occupancies and contract sales in many of our North America locations ending the quarter at or above 2019 levels, we've been able to return our focus back to the transformational initiatives that will help drive long-term growth and improve margins, many of which are digitally enabled. Before I get too deep into those efforts, let me quickly review our second quarter. Starting with our vacation ownership business, occupancies continued to improve in a number of key markets during the quarter. As we've discussed in the past, our two largest markets, Hawaii and Orlando, which combined represent more than 40% of our North American keys, were slower to recover in the first quarter. But both of these markets showed substantial improvement this quarter, with Hawaii running over 90% occupancy and Orlando running more than 85%, with both locations either in line or exceeding June 2019 levels. Our Florida Beach and U.S. Virgin Island resorts averaged 95% for the quarter, each above 2019. And our mountain and desert resorts were nearly 90% during the quarter. well above 2019 levels. Even our urban locations saw substantial improvement as the quarter progressed, with San Diego and Boston exceeding 85% occupancy for the month of June. With the strong improvement in occupancies, we grew contract sales by 60% on a sequential basis, and we were only 6% below pre-pandemic levels. First-time buyers represented more than 30% of second quarter contract sales, up more than 500 basis points from the first quarter, which is very encouraging. As we've illustrated in the past, first-time buyers have historically doubled their revenue contribution within the first five years of their initial purchase, so it's nice to see the mix continuing to trend back towards pre-pandemic levels. Now, more than ever, the product we sell is resonating with customers. This was clearly evident in our VPG this quarter, which was more than $1,000, or 30%, higher than 2019, with the improvement coming from both first-time buyers and owners. Results in our exchange and third-party management business were in line with our expectations this quarter. Members at Interval International declined on a sequential basis, primarily due to the non-renewal of a corporate account we talked about in February. Interval exchange transactions were down sequentially due to normal seasonality but we're only down 1% compared to the second quarter of 2019. And average revenue per member was up 7% from two years ago. We're often asked by investors how long we think this resurgence will last. While it's hard to answer with clarity, timeshare is still an underrepresented part of the broader leisure market and is resonating with travelers now more than ever. In addition, people have more money in their pockets and they're just beginning to travel again. At the same time, our core customer arguably was less impacted by the pandemic. I also believe that our core product offering, which combines the benefits of staying at a fully amenitized branded resorts in a highly desirable location with added square footage, is resonating with people who may not have stayed at a timeshare in the past. So while it's hard to know with certainty how much pent-up demand there is, I do think the current environment has legs and we are well positioned to take advantage of the opportunities that lie ahead of us. With the recovery in full swing, we've been able to turn our focus back towards many of the growth initiatives we paused last year. If you remember our investor day back in October 2019, we spent considerable time talking about the substantial opportunity we have to apply cutting edge digital tools to drive growth and improve margins. We've recently restarted much of that work and I'm excited about the opportunity we have in front of us to continue to transform our business. I'll give you a few quick examples. Our customers have been moving into a digital world and they expect us to move with them. Two years ago, less than half of our points reservations were made online. However, as we accelerated our digital customer initiatives last year, it helped drive a substantial increase in online points transactions. Today, 60% of points reservations are being made online and I expect that to continue to grow in the future. We will soon be enhancing the capabilities for customers to not only buy their vacation preview packages online, but to book them as well. While we believe some customers will always want to speak with a live agent, this tool offers substantial growth opportunity for our business when we begin to roll it out later this year. We're leveraging leading-edge tools from companies such as Salesforce and Adobe to automate our digital marketing campaigns to hone our efforts in targeting the right customer at the right time with the right offer. We recently relaunched our social media efforts on Facebook and Instagram. Our objective here is to leverage these low-cost, targeted channels to build and optimize our preview package pipeline, focusing on generating high-quality tours to drive future contract sales. We continue to expand the use of technology to lower our back office costs and improve our associates experience by leveraging artificial intelligence to augment and automate many of our high volume internal transactional processes. And we're making good progress on the technology needed to link our Marriott Westin and Sheraton products into a single point space offering in early 2022. Going forward, we will continue to increase our use of these digital tools to strengthen our infrastructure, grow online package sales, enable self-service bookings, make real-time offerings, enhance the overall customer experience, and drive back office efficiencies. But innovation at MVW isn't limited to our vacation ownership business. In our exchange and third-party management segment, Nearly 60% of Interval's exchange and getaway transactions have been done online this year, and we expect that to continue to grow. We are implementing Adobe to enhance our cross-channel customer experiences and improve our ability to more effectively market to members based on a more integrated view of their activities. And, as we mentioned last quarter, Interval recently introduced short stay getaways, which allows members to book their vacation for less than seven days. This program offers members greater flexibility when renting through interval, while allowing us to be more efficient in our rental programs. While still early days, short-term getaways represented more than 5% of the total second quarter rentals, and we're finding a lot of members using short-term getaways as a way to extend their stay beyond a week, which is a new incremental usage case. So let's talk about where the second half might look like. and when we think we can get back to pre-pandemic levels again. We continue to be very encouraged with the improvement of our business. Occupancies were at or above 2019 levels in the second quarter at a number of locations, while roughly 45% of our North American sales centers exceeded their 2019 levels in June. Reservations in our urban locations are building nicely for the second half of the year. though the recovery in our international locations continues to lag the United States. We sold 60% more tour packages in the second quarter than we did in the first quarter and ended June with more than 200,000 tours in our package pipeline, which is a positive leading indicator for future contract sales. We currently have 16% more owner and preview reservations on the books for the second half of this year, than we did at the same time in 2019. And bookings already for next year are very strong. Interval is continuing to work to enhance the technology to significantly expand its addressable market beyond timeshare as we move through the balance of this year, and we look forward to sharing more specifics with you. And we are working diligently to integrate Welk into our Hyatt vacation ownership business. There is more work to be done, but we have made great strides in setting the groundwork to reflag the resorts, integrate the businesses, and establish a revitalized brand throughout our entire Hyatt business. It becomes more evident each day that the fit between Hyatt and Welk cultures are complementary in every aspect. The second quarter strength has continued into July, with VPG remaining well above 2019, and our research continues to point to a very strong leisure trends in North America. For example, over 47 million Americans traveled over the July 4th weekend, with Orlando topping the list of destinations. 42% of households say they are better off financially than they were a year ago, and 45% feel now is a good time to spend money on leisure travel. Google search queries for resorts and hotels are higher than they've been in five years. Three out of of four of our owners say they're ready to travel in the next 90 days, while over 90% of interval members surveyed said they plan to travel in the second half of the year. Consumer confidence hit a record high in the second quarter of 2021, which is very positive for our business. And a growing percentage of people returning to work are splitting their time between the office and home, which could have long-term positive implications for our business. All of this points to continued strong growth and gives us optimism about the balance of the year. With that, I'll turn the call over to John.