Marriott Vacations Worldwide Corporation Q3 FY2025 earnings call

• Adjusted sales and marketing incentive plans to align with long-term objectives. - Working to curb third-party commercial rental activity to increase inventory for owners, driving higher owner satisfaction and incremental arrivals. - Implemented FICO scoring data for marketing to improve VPGs and credit metrics. - Modernization program making progress towards $150 million to $200 million in run rate EBITDA benefit by end 2026, including $20 million annual cost savings from HR and Finance/Accounting function reorganization. - Rolled out initiatives to improve VPG, like offering Bonvoy points for on-arrivals and new owner experience initiative to reduce rescissions and boost tour pipeline. - Expanded presence in Asia Pacific with opening of new resort in Khao Lak, Thailand, with other resorts/sales centers in development to contribute over $80 million in annual contract sales within a few years.

Third quarter contract sales declined 4% year-over-year. Excluding Orlando and Maui (2 largest markets), system-wide contract sales were approximately flat. Recurring revenue businesses: Management and exchange profit increased 12% to $96 million, financing profit increased 5% to $52 million. Corporate G&A decreased $8 million. Adjusted EBITDA decreased 15% year-over-year to $170 million. Contract sales decline was driven by 5% lower VPG and 1% decline in tours. Delinquencies declined 100 basis points year-over-year, financing propensity increased 90 basis points.

• Expect contract sales to decline 2% to 3% for the year, with tours flat to slightly up and VPG down. - Rental profit expected to decline around $30 million this year. - Adjusted EBITDA expected in the $740 million to $755 million range this year. - Adjusted free cash flow expected $235 million to $270 million this year. - Modernization program still expected to deliver $150 million to $200 million in run rate EBITDA benefit by end of 2026, with incremental $60 million to $80 million benefit to bottom line in 2026 and full run rate in 2027.

• Continued weakness in Orlando and Maui markets impacting contract sales. - Impact of third-party commercial rental activity on owner arrivals and satisfaction at attractive destinations. - Sales force turnover in competitive markets like Orlando and Maui affecting VPG and sales. - Recovery challenges in Maui post-wildfires affecting sales and sales execs' ability to commute.

Q: Talk about strategy to reinvigorate top line, whether on VPG or tours, and levers at disposal.

A: John Geller discussed focusing on growth, adjusting sales and marketing incentives, curbing commercial rental activity, ramping up sales training, and focusing on retaining and recruiting sales talent.

Q: When considering strategic alternatives given underperformance.

A: John Geller stated they're constantly looking at all things and working with the Board to increase shareholder value.

Q: Confidence 3Q issues won't persist into 4Q.

A: John Geller mentioned early trends in October show VPGs trending more positive, with initiatives to drive owner arrivals and considering packages and owner keys on the books.

Q: Issue with rental bookings hurting owner arrivals and VPG in 3Q.

A: John Geller explained small subset of owners engaged in commercial rental activity, impacting owner arrivals and satisfaction, and they're working on enforcing rules to curb this.

Q: Percentage of inventory used by commercial third parties, and how long issue has been a problem.

A: John Geller said it's a small subset, and they've seen an increase in recent years, using technology to track and enforce rules.

Q: Sales force management, recent changes, and future.

A: John Geller talked about focusing on training, retaining and recruiting sales talent, with some turnover in competitive markets like Orlando and Maui, and Jason Marino added about sales execs in Maui affected by wildfires.

Q: Costs/expenses for next year to be aware of.

A: Jason Marino mentioned higher product costs due to inventory mix, including Khao Lak inventory and domestic mix, and $20 million annual cost savings from reorganization.

Q: Expectation for rental business profit next year.

A: Jason Marino said they're working through it, with higher unsold maintenance fees and working to see if profit can grow despite headwinds.