Marriott Vacations Worldwide Reports Second Quarter Financial Results

ORLANDO, Fla., Aug. 3, 2017 /PRNewswire/ -- Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported second quarter financial results and updated its guidance for the full year 2017. Due to the change in the company's financial reporting calendar beginning in 2017, the second quarter of 2017 included the period from April 1, 2017 through June 30, 2017 (91 days) compared to the 2016 second quarter, which included the period from March 26, 2016 through June 17, 2016 (84 days). Prior year results have not been restated for the change in the company's reporting calendar.

Second quarter 2017 highlights:

• Total company vacation ownership contract sales were $209.9 million, an increase of $43.9 million, or 26 percent, compared to the prior year period. North America vacation ownership contract sales were $190.9 million, an increase of $45.3 million, or 31 percent, compared to the prior year period.
• Excluding the estimated impact of the change in the company's financial reporting calendar, total company and North America vacation ownership contract sales would have increased 18 percent and 22 percent, respectively, compared to the prior year period.
• North America VPG totaled $3,579, a 6 percent increase from the second quarter of 2016.
• North America tours increased 28 percent year-over-year.
• Excluding the estimated impact of the change in the company's financial reporting calendar, tours would have increased 18 percent, compared to the prior year period.
• Net income was $44.3 million, or $1.58 fully diluted earnings per share (EPS), compared to net income of $36.3 million, or $1.26 fully diluted EPS, in the second quarter of 2016, an increase of 22 percent and 25 percent, respectively.
• Adjusted net income was $44.6 million, compared to adjusted net income of $31.3 million in the second quarter of 2016, an increase of 43 percent. Adjusted fully diluted EPS was $1.60, compared to adjusted fully diluted EPS of $1.08 in the second quarter of 2016, an increase of 48 percent.
• Adjusted EBITDA totaled $77.9 million, an increase of $13.7 million, or 21 percent, year-over-year.

"I am extremely pleased with how 2017 has continued to progress. Contract sales, on a comparable basis, grew over 18 percent, marking the third quarter in a row that we've generated sales growth in excess of 15 percent. Adjusted EBITDA grew 21 percent, to $77.9 million, with strong contributions from all lines of business," said Stephen P. Weisz, president and chief executive officer. "With the performance we've delivered through the end of the second quarter, we are raising our full year outlook for contract sales growth to 12 percent to 16 percent, net income to $154 million to $160 million, adjusted EBITDA to $282 million to $292 million, and adjusted free cash flow to $190 million to $210 million."

Non-GAAP financial measures, such as adjusted net income, adjusted EBITDA, adjusted fully diluted earnings per share, adjusted free cash flow, and adjusted development margin are reconciled and adjustments are shown and described in further detail on pages A-1 through A-11 of the Financial Schedules that follow.

Second Quarter 2017 Results

As a result of the change in the company's financial reporting calendar, financial results for the second quarter 2017 include the impact of seven additional days of operations.

Company Results

Second quarter 2017 company net income was $44.3 million, an $8.0 million increase from the second quarter of 2016. Excluding the impact of the provision for income taxes, these results were driven by $7.1 million of higher development margin, $5.0 million of higher rental revenues net of expenses, $5.0 million of higher resort management and other services revenues net of expenses, $2.5 million of higher financing revenues net of expenses and consumer financing interest expense, $1.8 million of lower acquisition costs, and $0.3 million of lower interest expense, partially offset by $10.8 million of lower gains and other income, $4.2 million of higher general and administrative costs, $2.3 million of higher royalty fees, and $0.2 million of higher litigation settlement costs.

Total company vacation ownership contract sales were $209.9 million, $43.9 million, or 26 percent, higher than the second quarter of 2016. These results were driven by $45.3 million of higher contract sales in the company's North America segment and $1.2 million of higher contract sales in the company's Asia Pacific segment, partially offset by $2.5 million of lower contract sales in the company's Europe segment. Excluding the estimated impact of the change in the company's financial reporting calendar, total company vacation ownership contract sales would have increased 18 percent, compared to the prior year period.

Development margin was $40.8 million, a $7.1 million increase from the second quarter of 2016. Development margin percentage was 21.4 percent compared to 23.1 percent in the prior year quarter. The increase in development margin reflected $11.0 million from higher contract sales volumes net of expenses, $6.8 million from lower product costs, and $1.9 million related to favorable revenue reportability year-over-year, partially offset by $7.0 million from lower favorable product cost true-up activity year-over-year, $5.4 million of higher marketing and sales costs including costs to ramp up the company's new sales distributions, and $0.3 million from higher sales reserve activity. Adjusted development margin percentage, which excludes the impact of revenue reportability year-over-year, was 20.4 percent in the second quarter of 2017 compared to 22.8 percent in the second quarter of 2016.

Rental revenues totaled $84.2 million, a $9.1 million increase from the second quarter of 2016. Rental revenues net of expenses were $14.0 million, a $5.0 million, or 55 percent, increase from the second quarter of 2016.

Resort management and other services revenues totaled $79.2 million, a $5.0 million increase from the second quarter of 2016. Resort management and other services revenues, net of expenses, totaled $35.2 million, a $5.0 million, or 17 percent, increase from the second quarter of 2016.

Financing revenues totaled $32.5 million, a $3.9 million increase from the second quarter of 2016. Financing revenues, net of expenses and consumer financing interest expense, were $23.4 million, a $2.5 million, or 12 percent, increase from the second quarter of 2016.

Net income was $44.3 million, compared to net income of $36.3 million in the second quarter of 2016, an increase of $8.0 million, or 22 percent. Adjusted EBITDA was $77.9 million, a $13.7 million, or 21 percent, increase from $64.2 million in the second quarter of 2016.

Segment Results

North America

North America vacation ownership contract sales were $190.9 million, an increase of $45.3 million, or 31 percent, from the prior year period, reflecting higher sales from existing sales centers driven by the success of our new marketing programs, as well as the continued ramp-up of new sales distributions. VPG increased $195, or 6 percent, to $3,579 in the second quarter of 2017 from the second quarter of 2016. Total tours in the second quarter of 2017 increased 28 percent, reflecting a 34 percent increase in first time buyer tours and a 23 percent increase in owner tours. Excluding the estimated impact of the change in the company's financial reporting calendar, vacation ownership contract sales and tours would have increased 22 percent and 18 percent, respectively, compared to the prior year period.

Second quarter 2017 North America segment financial results were $118.7 million, an increase of $8.3 million from the second quarter of 2016. The increase was driven primarily by $6.9 million of higher development margin, $5.0 million of higher resort management and other services revenues net of expenses, $4.1 million of higher rental revenues net of expenses, $3.9 million of higher financing revenues, and $1.8 million of lower acquisition costs, partially offset by $12.5 million of lower gains and other income, and $0.8 million of higher royalty fees.

Development margin was $43.4 million, a $6.9 million increase from the second quarter of 2016. Development margin percentage was 24.7 percent compared to 27.5 percent in the prior year quarter. The increase in development margin reflected $11.2 million from higher contract sales volumes net of expenses, $6.5 million from lower product costs, and $1.1 million related to favorable revenue reportability year-over-year, partially offset by $6.8 million from lower favorable product cost true-up activity year-over-year, $3.6 million of higher marketing and sales costs including costs to ramp up the company's new sales distributions, and $1.5 million from higher sales reserve activity mainly associated with an 11.0 percentage point increase in financing propensity. Adjusted development margin percentage, which excludes the impact of revenue reportability, was 23.4 percent in the second quarter of 2017, compared to 26.5 percent in the second quarter of 2016.

Asia Pacific

Total vacation ownership contract sales in the segment were $11.6 million, an increase of $1.2 million, or 11 percent, from the second quarter of 2016, due primarily to the opening of the new sales distribution in Surfers Paradise, Australia in the second quarter of 2016. Segment financial results were a loss of $1.1 million, a $1.5 million improvement from the second quarter of 2016. Excluding the estimated impact of the change in the company's financial reporting calendar, vacation ownership contract sales would have increased 6 percent, compared to the prior year period.

Europe

Second quarter 2017 contract sales were $7.4 million, a decrease of $2.5 million, or 25.6 percent, from the second quarter of 2016. Segment financial results were $3.4 million, an increase of $1.3 million, or 58.8 percent, from the second quarter of 2016.

Share Repurchase Program

During the 2017 second quarter, the company repurchased 32,500 shares of its common stock for a total of $3.9 million under its share repurchase program. Subsequent to the end of the 2017 second quarter, the company's Board of Directors authorized the company to repurchase up to 1 million additional shares under its share repurchase program, bringing the current remaining authorization to approximately 2.0 million shares and extending the program through May 31, 2018.

Balance Sheet and Liquidity

On June 30, 2017, cash and cash equivalents totaled $85.2 million. Since the beginning of the year, real estate inventory balances increased $31.3 million to $739.4 million, including $421.1 million of finished goods and $318.3 million of land and infrastructure. The company had $789.7 million in gross debt outstanding at the end of the second quarter, an increase of $43.3 million from year-end 2016, consisting primarily of $671.2 million in gross securitized notes receivable, $63.6 million related to a non-interest bearing note issued in conjunction with the capital efficient acquisition of vacation ownership units, $47.5 million outstanding under its revolving corporate credit facility, and approximately $7 million related to capital leases and other miscellaneous debt.

As of June 30, 2017, the company had approximately $147.9 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit, and approximately $239.7 million of gross vacation ownership notes receivable eligible for securitization.

Fiscal Year Change

The table below shows the number of days for each reporting period in 2017 and 2016:

Outlook

Pages A-1 through A-11 of the Financial Schedules reconcile the non-GAAP financial measures set forth below to the following full year 2017 expected GAAP results:

The company is providing the following updated guidance for the full year 2017:

Second Quarter 2017 Earnings Conference Call

The company will hold a conference call at 10:00 a.m. EDT today to discuss these results and the guidance for full year 2017. 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.

An audio replay of the conference call will be available for seven days and can be accessed at 877-660-6853 or 201-612-7415 for international callers. The conference ID for the recording is 13666344. The webcast will also be available on the company's website.

About Marriott Vacations Worldwide Corporation
Marriott Vacations Worldwide Corporation is a leading global pure-play vacation ownership company, offering a diverse portfolio of quality products, programs and management expertise with over 65 resorts. Its brands include Marriott Vacation Club, The Ritz-Carlton Destination Club and Grand Residences by Marriott. Since entering the industry in 1984 as part of Marriott International, Inc., the company earned its position as a leader and innovator in vacation ownership products. The company preserves high standards of excellence in serving its customers, investors and associates while maintaining a long-term relationship with Marriott International. 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. 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, supply and demand changes 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 August 3, 2017 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.

Financial Schedules Follow