VAC

Growth Strategy Pillars

• Owner growth: Focus on continued Volume Per Guest (VPG) growth from the company's new strategy, with Premier Vacations building a large pipeline of predictable owner tour flow expected to convert at strong VPG levels. The Inner Circle experiential events program will be significantly scaled through 2027 and beyond to boost tour connection rates and deliver outsized VPGs, while the company continues to improve owner arrival-to-tour conversion rates.
• First-time buyer growth: Expand preview package sales to future resort tour attendees, fueled by access to the Marriott Bonvoy and World of Hyatt loyalty program databases. Aggressively expand the Hotel Linkage Program, which adds marketing desks in select North American branded hotel lobbies to invite guests to purchase preview packages. Build out partnership marketing as a major incremental growth channel, with dedicated teams selling preview packages in-person at high-foot-traffic leisure events and offering packages electronically to partner customer databases.

Operational Improvements

• Invested in enhanced sales and marketing recruiting, and has successfully attracted top industry talent driven by the company's innovation, strong brands, and positive culture.
• Implemented a price increase on July 1 that has not negatively impacted performance, with management identifying further incremental price increase opportunities.
• Ongoing cost reduction efforts that support the company's growth strategy, with marketing and sales expense as a percentage of contract sales decreasing 150 basis points year-over-year, a 700 basis point sequential improvement from Q1.
• Ongoing non-core asset disposition program, with multiple assets actively marketed for sale. The previously targeted New York City non-core asset will instead be added to the company's inventory trust to support higher contract sales, moving total expected disposition proceeds to $200 million by the end of 2027, with $50 million in sales expected in H2 2024.

Recent Performance

• New transformation initiatives are already delivering strong results, with 22% contract sales growth and 23% VPG growth in Q2. Strong performance momentum has continued into July.

• Full-year 2024 contract sales are now expected to increase 18-20% year-over-year, implying 25-29% growth in the second half of the year, an upward revision from prior guidance.
• Adjusted EBITDA guidance is raised to $805-$830 million for full-year 2024, a $50 million increase to the prior guidance range.
• Adjusted full-year 2024 free cash flow guidance is raised to $410-$460 million, representing a $35 million increase at the midpoint of the range. The $50 million in expected H2 2024 non-core asset sales are excluded from this adjusted free cash flow guidance.
• Full-year 2024 free cash flow conversion is expected to land in the mid 50% range.
• Management expects margin improvement in the second half of 2024 driven by fixed cost leverage and implemented cost savings measures.
• Non-core asset disposition proceeds are now targeted to reach $200 million by the end of 2027, down from prior expectations following the decision to retain the New York City property.
• As free cash flow grows, the company will evaluate capital deployment opportunities prioritized by debt repayment, dividends, and opportunistic share repurchases. Once net leverage falls below 4x, management will become more opportunistic with share repurchases, and expects leverage to reach the upper 3x range by the end of 2024.

Development: Development profit increased $14 million year-over-year to $106 million, driven by 22% year-over-year contract sales growth (to $545 million total contract sales) and a 130 basis point year-over-year reduction in vacation ownership sales cost as a percentage of development revenue. A $15 million negative impact on development profit came from unreportable revenue from contracts sold in the final 10 days of the quarter (still in rescission period, with most sales and marketing costs already recognized). Management and exchange: Management and exchange profit increased $6 million year-over-year. Financing: Financing profit was unchanged year-over-year when excluding the change in interest expense presentation for the company's warehouse credit facility. Overall company: Adjusted EBITDA increased 6% year-over-year to $215 million. Net corporate debt totaled $3.1 billion at quarter end, with a leverage ratio of approximately 4x. Sales to existing owners increased 41% year-over-year; North American tours increased 3% and North American contract sales increased 27% year-over-year.

• Revenue reportability: Periods of strong contract sales growth carry an adverse impact to reported revenue, as revenue from contracts sold in the final 10 days of a quarter cannot be recognized while they are in the rescission period, even though most associated sales and marketing costs are recognized immediately. This reduced Q2 2024 development profit by $15 million.
• Sales reserve: The company increased the sales reserve as a percentage of contract sales to 13.4% in Q2 following 22% year-over-year contract sales growth, which management deemed a prudent step given the higher sales volume.
• Loan loss provision: The loan loss provision as a percentage of contract sales increased 20 basis points year-over-year in Q2, driven by a higher propensity of buyers to finance purchases through the company, increasing the total volume of financed receivables.

Q: The analyst asks if Q2 contract sales growth was driven by tour logistics improvements, and whether the newly launched Premier Vacations and Inner Circle programs contributed to Q2 results, plus what their expected ramp to contribute to full-year guidance looks like. / A: Management confirms the analyst is correct: strong Q2 results came from tour logistics matching (which uses propensity algorithms to pair customers with the right salespeople) plus refreshed owner benefit tiers that created purchase aspiration. Premier Vacations and Inner Circle only launched late in Q2, so they contributed almost nothing to the quarter, but early June performance indicators were above expectations. These new programs are expected to act as a major growth catalyst for the second half of 2024.

Q: The analyst asks how recruitment of new sales talent is progressing, whether most targeted hires have been completed, and if near-term hiring costs are weighing on margin flow through. / A: Management states that recruitment is going far better than expected, with top industry talent consistently joining the firm driven by its innovation, strong brands, and positive culture. Recruitment activity is not negatively impacting near-term margin flow through, so sequential improvement from hiring costs is not needed for this factor.

Q: The analyst asks for details on the expected ramp-up of Inner Circle events, including targets for the back half of 2024, 2026, and full-year 2027 run rate. / A: Management confirms 5 events were held in Q2, with 50 events targeted for 2026. Only 20% of future Inner Circle events will be large headline events; 80% will be smaller regional events, which also deliver outsized VPG. The 2027 target is a couple hundred large headline events and 1,000 total Inner Circle events per year.

Q: The analyst asks how much the Hotel Linkage Program has been scaled to date, what its prior scale was when the current leadership arrived, and what the ultimate growth target is. / A: Management confirms that when the current leadership team arrived, there were almost no hotel partnerships in the program. The company currently has marketing desks in just 4-5 hotels, but sees significant upside to scale the program by partnering with hotel owners in key markets to add incremental tour flow. More specific scaling targets will be shared at the upcoming investor day.

Q: The analyst asks what the rationale was for removing the New York City property from the non-core disposition list and retaining it. / A: Management explains that current inventory levels are sufficient to support expected sales growth over the next 1.7 years, and the company decided to add the New York City property to its inventory trust to support higher projected contract sales volumes going forward, leading to the downward revision in total expected disposition proceeds.