Marriott Vacations Worldwide ("MVW") Reports Third Quarter Financial Results

ORLANDO, Fla., Nov. 4, 2019 /PRNewswire/ -- Marriott Vacations Worldwide Corporation VAC today reported third quarter financial results.

In addition to a discussion of the third quarter reported results presented in accordance with United States generally accepted accounting principles ("GAAP"), to provide a more meaningful year-over-year comparison of financial results, the company is also providing third quarter 2018 financial information in the financial schedules that follow that combine the third quarter reported 2018 financial results of the company with the financial results for the first two months of the 2018 third quarter for the brands and businesses acquired by the company in its acquisition of ILG, Inc. ("ILG") in September 2018, conformed to the current year presentations.

Third Quarter 2019 Highlights:

• Consolidated vacation ownership contract sales increased 40% to $390 million.
• On a combined basis, consolidated vacation ownership contract sales increased nearly 5%. After adjusting for a $7 million adverse impact from Hurricane Dorian (the "Hurricane"), sales would have increased 6.5%.
• Net loss attributable to common shareholders was $9 million, or $0.21 loss per fully diluted share ("EPS"), compared to net loss attributable to common shareholders of $36 million, or $1.08 loss per fully diluted share, in the third quarter of 2018.
• Adjusted net income attributable to common shareholders increased 83% to $86 million and Adjusted fully diluted EPS increased 39% to $1.97.
• Adjusted EBITDA increased 89% to $190 million in the third quarter of 2019.
• On a combined basis, Adjusted EBITDA increased 18% and would have increased 21% excluding VRI Europe, which was disposed of in the fourth quarter of 2018.
• The company estimates that the Hurricane negatively impacted its third quarter Adjusted EBITDA by $1 million and expects the 2019 full-year impact to be $4 million.
• The company received $38 million of insurance proceeds during the quarter related to business interruption losses at its Westin St. John property. These proceeds have been excluded from the company's calculation of Adjusted EBITDA and Adjusted Free Cash Flow.
• Subsequent to the end of the third quarter, the company completed a $315 million note securitization at a blended interest rate of 2.29 percent and a 98 percent advance rate.
• The company repurchased over 1.3 million shares of its common stock for $127 million in the third quarter of 2019 at an average price per share of $97.06.
• Subsequent to the end of the quarter, the company repurchased an additional 431 thousand shares of its common stock for $46 million bringing its year-to-date share repurchases to 4.1 million shares, or $388 million.
• The company updated its 2019 guidance primarily to reflect the impact of the Hurricane.

"I'm very excited about the improvements we've been able to drive at the acquired vacation ownership brands contributing to our 18% Adjusted EBITDA growth in the third quarter on a combined basis," said Stephen P. Weisz, president and chief executive officer. "The third quarter also marked the one-year anniversary of the ILG acquisition and the integration continues to  progress nicely, which enabled us to recently increase our run-rate synergy target to $125 million by the end of 2021."

Third Quarter 2019 Segment Results

Vacation Ownership

Revenues excluding cost reimbursements increased 43% in the third quarter driven by a 40% increase in consolidated vacation ownership contract sales. On a combined basis, revenues excluding cost reimbursements increased 4% with consolidated contract sales increasing nearly 5%.  Contract sales in the quarter were adversely impacted by $7 million due to the Hurricane.

Vacation Ownership segment financial results were $100 million for the third quarter of 2019.  On a combined basis, Vacation Ownership segment Adjusted EBITDA increased 11% to $195 million in the third quarter and margin improved 180 basis points, excluding cost reimbursements.

Exchange & Third-Party Management

Exchange & Third-Party Management revenues totaled $112 million in the third quarter of 2019.  Interval International average revenue per member increased 2% to $40.89 and active members totaled 1.7 million at the end of the third quarter of 2019.

Exchange & Third-Party Management segment financial results and Adjusted EBITDA were $46 million and $56 million, respectively, in the third quarter of 2019.  On a combined basis, Exchange & Third-Party Management segment Adjusted EBITDA decreased 7% after adjusting 2018 to exclude VRI Europe.

Corporate and Other

Corporate and Other results, which consist primarily of general and administrative costs, decreased $19 million in the third quarter of 2019 as a result of synergy savings and lower compensation related expenses, partially offset by normal inflationary cost increases.

Balance Sheet and Liquidity

On September 30, 2019, cash and cash equivalents totaled $183 million. The inventory balance at the end of the third quarter included $840 million of finished goods and $59 million of work-in-progress. The company had $4.0 billion in debt outstanding, net of unamortized debt issuance costs, at the end of the third quarter. This debt included $2.3 billion of corporate debt and $1.7 billion of non-recourse debt related to the company's securitized notes receivable.

As of September 30, 2019, the company had $372 million in available capacity under its revolving credit facility.

Subsequent to the end of the third quarter, the company completed a $315 million note securitization at a blended interest rate of 2.29 percent and a 98 percent advance rate.

Subsequent to the end of the third quarter, the company issued $350 million of 4.750% senior notes due in 2028 and redeemed its 5.625% senior notes due in 2023 and repaid a portion of its outstanding borrowings under its Revolving Credit Facility.

Proceeds from Asset Dispositions

As a result of the ILG Acquisition, the company performed a comprehensive review of its Vacation Ownership property and equipment including undeveloped parcels, future phases of existing resorts, operating hotels and other non-core assets, to determine the best strategic direction with respect to these assets.  As a result of the review, the company currently expects proceeds from future asset dispositions to be between $160 million and $220 million.

2019 Hurricane Impact

During the third quarter of 2019, several properties in the company's Vacation Ownership segment were negatively impacted by the Hurricane. As a result of mandatory evacuations, resort and sales center shutdowns, and cancellations of reservations and scheduled tours, the company estimates contract sales in the third quarter were adversely impacted by $7 million. In addition, the company estimates full year 2019 Adjusted EBITDA to be adversely impacted by roughly $4 million, of which $1 million related to the third quarter of 2019.

2019 Outlook

The Financial Schedules that follow reconcile the non-GAAP financial measures set forth below to the following full year 2019 expected GAAP results for the company.

2019 expected GAAP results and guidance above include an estimate of the impact of future spending associated with on-going ILG integration efforts.

The company updated its full year 2019 guidance as reflected in the chart below:

Non-GAAP Financial Information

Non-GAAP financial measures, such as adjusted net income, adjusted EBITDA, adjusted fully diluted earnings per share, adjusted free cash flow, adjusted development margin and adjusted and combined financial measures are reconciled and adjustments are shown and described in further detail in the Financial Schedules that follow.

Third Quarter 2019 Earnings Conference Call

The company will hold a conference call on November 5, 2019 at 8:30 a.m. ET to discuss these results and the guidance for full year 2019. Participants may access the call by dialing (877) 407-8289 or (201) 689-8341 for international callers.  A live webcast of the call will also be available in the Investor Relations section of the company's website at www.marriottvacationsworldwide.com.

Investors will be able to access an audio replay of the conference call at ir.mvwc.com from 10:00 a.m. on November 5, 2019 until 10:00 p.m. on November 19, 2019. To access the replay, dial (877) 660-6853 or (201) 612-7415 for international callers. The conference ID for the recording is 13695443.

About Marriott Vacations Worldwide Corporation

Marriott Vacations Worldwide Corporation is a leading global vacation company that offers vacation ownership, exchange, rental and resort and property management, along with related businesses, products and services. The company has a diverse portfolio that includes seven vacation ownership brands. It also includes exchange networks and membership programs, as well as management of other resorts and lodging properties. As a leader and innovator in the vacation industry, the company upholds the highest standards of excellence in serving its customers, investors and associates while maintaining exclusive, long-term relationships with Marriott International and Hyatt Hotels Corporation for the development, sales and marketing of vacation ownership products and services. For more information, please visit www.marriottvacationsworldwide.com.

Note on forward-looking statements

This press release and accompanying schedules contain "forward-looking statements" within the meaning of federal securities laws, including statements about future operating results, estimates, and assumptions, and similar statements concerning anticipated future events and expectations that are not historical facts, including guidance about full year 2019 results, expected full year 2019 GAAP results and expected synergies from the ILG acquisition. The company cautions you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including volatility in the economy and the credit markets, changes in supply and demand for vacation ownership and residential products, competitive conditions, the availability of capital to finance growth, and other matters referred to under the heading "Risk Factors" contained in the company's most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC") and in subsequent SEC filings, any of which could cause actual results to differ materially from those expressed in or implied in this press release. These statements are made as of November 4, 2019 and the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

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MARRIOTT VACATIONS WORLDWIDE CORPORATION

NON-GAAP FINANCIAL MEASURES

In our press release and schedules, and on the related conference call, we report certain financial measures that are not prescribed by GAAP. We discuss our reasons for reporting these non-GAAP financial measures below, and the financial schedules included herein reconcile the most directly comparable GAAP financial measure to each non-GAAP financial measure that we report (identified by a double asterisk ("**") on the preceding pages). Although we evaluate and present these non-GAAP financial measures for the reasons described below, please be aware that these non-GAAP financial measures have limitations and should not be considered in isolation or as a substitute for revenues, net income attributable to common shareholders, earnings per share or any other comparable operating measure prescribed by GAAP. In addition, these non-GAAP financial measures may be calculated and / or presented differently than measures with the same or similar names that are reported by other companies, and as a result, the non-GAAP financial measures we report may not be comparable to those reported by others.

Certain Items Excluded from Adjusted Net Income Attributable to Common Shareholders, Adjusted EBITDA and Adjusted Development Margin

We evaluate non-GAAP financial measures, including Adjusted Net Income attributable to common shareholders, Adjusted EBITDA and Adjusted Development Margin, that exclude certain items in the three months and nine months ended September 30, 2019 and September 30, 2018, because these non-GAAP financial measures allow for period-over-period comparisons of our on-going core operations before the impact of these items. These non-GAAP financial measures also facilitate our comparison of results from our on-going core operations before these items with results from other vacation ownership companies.

Certain items - Quarter and First Three Quarters Ended September 30, 2019

Certain items for the third quarter of 2019 consisted of $73 million of asset impairment charges, $33 million of acquisition costs (including $32 million of ILG acquisition-related costs and $1 million of other acquisition costs), $5 million of losses and other expenses, $2 million of purchase price adjustments, and $3 million of litigation charges.

Certain items for the first three quarters of 2019 consisted of $99 million of asset impairment charges, $95 million of acquisition costs (including $94 million of ILG acquisition-related costs and $1 million of other acquisition costs), $7 million of purchase price adjustments, $5 million of litigation charges, and $1 million of other severance costs, partially offset by $5 million of miscellaneous gains and other income.

Certain items - Quarter and First Three Quarters Ended September 30, 2018

Certain items for the third quarter of 2018 consisted of $78 million of ILG acquisition-related costs and $17 million of litigation charges, partially offset by $2 million of gains and other income. The net impact of purchase accounting adjustments to adjusted EBITDA was less than $1 million in the third quarter of 2018.

Certain items for the first three quarters of 2018 consisted of $101 million of acquisition costs (including $98 million of ILG acquisition-related costs and $3 million of acquisition costs associated with the then anticipated capital efficient acquisition of an operating property in San Francisco), $33 million of litigation charges (including $17 million related to a project in Hawaii, $11 million related to a project in San Francisco and $5 million related to a project in Lake Tahoe), and $6 million of losses and other expenses primarily resulting from fraudulently induced electronic payment disbursements made to third parties, partially offset by $1 million favorable true up of previously recorded costs associated with the 2017 Hurricanes (recorded in Gains and other income) and $1 million of miscellaneous gains and other income.

Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses)

We evaluate Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses) as an indicator of operating performance. Adjusted Development Margin adjusts Sale of vacation ownership products revenues for the impact of revenue reportability, includes corresponding adjustments to Cost of vacation ownership products expense and Marketing and sales expense associated with the change in revenues from the Sale of vacation ownership products, and may include adjustments for certain items as itemized in the discussion in the preceding paragraph. We evaluate Adjusted Development Margin because it allows for period-over-period comparisons of our on-going core operations before the impact of revenue reportability and certain items to our Development Margin.

Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA

EBITDA is defined as earnings, or net income attributable to common shareholders, before interest expense (excluding consumer financing interest expense associated with term loan securitization transactions), provision for income taxes, depreciation and amortization. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense associated with term loan securitization transactions because we consider it to be an operating expense of our business. We consider EBITDA and Adjusted EBITDA to be indicators of operating performance, which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use EBITDA and Adjusted EBITDA, as do analysts, lenders, investors and others, because these measures exclude certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company's capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Adjusted EBITDA reflects additional adjustments for certain items, as itemized in the discussion of Adjusted Net Income Attributable to Common Shareholders above, and excludes share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. Prior period presentation has been recast for consistency. We evaluate Adjusted EBITDA as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items. Together, EBITDA and Adjusted EBITDA facilitate our comparison of results from our on-going core operations before the impact of these items with results from our competitors.

Free Cash Flow and Adjusted Free Cash Flow

We evaluate Free Cash Flow and Adjusted Free Cash Flow as liquidity measures that provide useful information to management and investors about the amount of cash provided by operating activities after capital expenditures for property and equipment, changes in restricted cash, and the borrowing and repayment activity related to our securitizations, which cash can be used for strategic opportunities, including acquisitions and strengthening the balance sheet. Adjusted Free Cash Flow, which reflects additional adjustments to Free Cash Flow for the impact of acquisition, litigation and other cash charges, allows for period-over-period comparisons of the cash generated by our business before the impact of these items. Analysis of Free Cash Flow and Adjusted Free Cash Flow also facilitates management's comparison of our results with our competitors' results.

Combined Financial Information

The unaudited combined financial information presented herein combines Legacy-MVW and Legacy-ILG results of operation for the three months ended September 30, 2018, and is presented to facilitate comparisons with our results following the acquisition of ILG. We evaluate the combined financial information, and believe it provides useful information to investors, because it provides for a more meaningful comparison of our results following the acquisition of ILG with the results of the combined businesses for the prior year comparable period. The combined financial information for the quarter ended September 30, 2018 was derived by combining the MVW financial information for the quarter ended September 30, 2018 included in the Quarterly Report on Form 10-Q filed by MVW with the SEC on November 7, 2018, revised as described in the following sentence, which included results of operations for Legacy-ILG for September 2018, and the Legacy-ILG financial information for July and August 2018 included in ILG internal management records.  MVW's financial information for the quarter ended September 30, 2018 was revised as set forth in the "Quarterly Results" note to MVW's consolidated financial statements included in MVW's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on March 1, 2019.  No other adjustments have been made to the Legacy-MVW or Legacy-ILG results to derive the combined financial information. The combined financial information is provided for informational purposes only and is not intended to represent or to be indicative of the actual results of operations that the combined MVW and ILG business would have reported had the ILG acquisition been completed prior to the beginning of fiscal year 2018 and should not be taken as being indicative of future combined results of operations. The actual results may differ significantly from those reflected in the combined financial information.

Debt to Adjusted EBITDA Ratio

We calculate debt to adjusted EBITDA ratio by dividing net debt by adjusted EBITDA, where net debt represents total gross debt less securitized debt, gross notes eligible for securitization at the end of such period at an estimated 85 percent advance rate, and cash and cash equivalents other than an estimated $150 million for working capital requirements, and adjusted EBITDA is the sum of the last four quarters of adjusted EBITDA for MVW, plus an additional $86 million of additional cost synergies ($125 million in total).

Vacation Ownership Adjusted EBITDA Margin

We calculate vacation ownership adjusted EBITDA margin by dividing combined vacation ownership adjusted EBITDA by combined vacation ownership revenues excluding reimbursed costs. Cost reimbursements revenue includes direct and indirect costs that property owners' associations and joint ventures we participate in reimburse to us, and relates, predominantly, to payroll costs where we are the employer. Because we record cost reimbursements based upon costs incurred with no added markup, this revenue and related expense has no impact on net income attributable to us because cost reimbursements revenue net of reimbursed costs expense is zero. We consider vacation ownership Adjusted EBITDA margin to be a meaningful measure, and believe it provides useful information to investors, because it represents our Adjusted EBITDA margin on that portion of revenue that impacts adjusted EBITDA attributable to us.

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SOURCE Marriott Vacations Worldwide