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Marriott Vacations Worldwide Reports First Quarter Financial Results

ORLANDO, Fla., May 3, 2018 /PRNewswire/ -- Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported first quarter financial results and reaffirmed its guidance for the full year 2018.

The company adopted Accounting Standards Update 2014-09, "Revenue from Contracts with Customers," as amended, at the beginning of 2018. With this adoption, the company also restated its 2017 reported financial results and has provided a reconciliation to its previously reported financial results.

Marriott Vacations Worldwide Corporation. (PRNewsFoto/Marriott Vacations Worldwide)

First Quarter 2018 Results:

  • Net income was $36 million, or $1.32 fully diluted earnings per share ("EPS"), compared to net income of $28 million, or $1.00 fully diluted EPS, in the first quarter of 2017.
  • Adjusted net income was $38 million, compared to adjusted net income of $28 million in the first quarter of 2017, an increase of 35 percent. Adjusted fully diluted EPS was $1.39, compared to adjusted fully diluted EPS of $1.01 in the first quarter of 2017, an increase of 38 percent.
  • Adjusted EBITDA totaled $63 million, an increase of $9 million, or 17 percent, year-over-year.
  • Total company vacation ownership contract sales were $204 million, an increase of $4 million, or 2 percent, compared to the prior year period. North America vacation ownership contract sales were $187 million, an increase of $4 million, or 2 percent, compared to the prior year period.
    • The company estimates that the 2017 hurricanes negatively impacted contract sales by more than $6 million in the first quarter. In addition, the company changed its financial reporting calendar at the beginning of 2017, and as a result, the prior year first quarter had two additional days of sales. Excluding both impacts, we estimate that total company and North America vacation ownership contract sales would have grown 6 percent and 7 percent, respectively, over the prior year period.
  • North America VPG totaled $3,728, a 1 percent increase from the first quarter of 2017. North America tours increased 3 percent year-over-year.
  • Development margin was $22 million, flat to the first quarter of 2017. Development margin percentage was 12.9 percent compared to 13.8 percent in the prior year quarter.
    • Total company adjusted development margin percentage, which excludes the impact of revenue reportability and other charges, was 16.4 percent in the first quarter of 2018 compared to 18.4 percent in the first quarter of 2017.
    • North America adjusted development margin percentage, which excludes the impact of revenue reportability and other charges, was 19.9 percent in the first quarter of 2018 compared to 21.2 percent in the first quarter of 2017.
  • Rental revenues totaled $74 million, a $7 million, or 10 percent, increase from the first quarter of 2017. Rental revenues net of expenses were $18 million, a $4 million, or 31 percent, increase from the first quarter of 2017.
  • Resort management and other services revenues totaled $70 million, a $3 million, or 4 percent, increase from the first quarter of 2017. Resort management and other services revenues, net of expenses, totaled $32 million, a $2 million, or 8 percent, increase from the first quarter of 2017.
  • Financing revenues totaled $35 million, a $3 million, or 10 percent, increase from the first quarter of 2017. Financing revenues, net of expenses and consumer financing interest expense, were $25 million, a $2 million, or 11 percent, increase from the first quarter of 2017.
  • During the first quarter of 2018, the company returned $23 million to its shareholders through quarterly cash dividends and the repurchase of its common stock.

"I am very pleased with our start to 2018.  In the first quarter, despite the lingering impact of the 2017 hurricanes, contract sales increased 2 percent and adjusted EBITDA grew 17 percent, as our business continues to grow from the ramp-up of our new locations as well as from marketing programs that continue to grow our tour flow," said Stephen P. Weisz, president and chief executive officer. "Our first quarter performance was in line with our expectations, giving us confidence we can achieve our 2018 full year guidance, including contract sales growth of 7 to 12 percent, net income of $182 million to $193 million, and adjusted EBITDA of $310 million to $325 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-17 of the Financial Schedules that follow.

Balance Sheet and Liquidity

On March 31, 2018, cash and cash equivalents totaled $324 million. Since the beginning of the year, real estate inventory balances decreased $2 million to $722 million, including $372 million of finished goods and $350 million of land and infrastructure. The company had $1 billion in debt outstanding, net of unamortized debt issuance costs, at the end of the first quarter, an increase of $83 million from year-end 2017, consisting primarily of $750 million of debt related to our securitized notes receivable and $194 million of convertible notes.

As of March 31, 2018, the company had approximately $244 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit, and approximately $267 million of gross vacation ownership notes receivable eligible for securitization.

Impact of Accounting Changes

The company adopted Accounting Standards Update 2014-09, "Revenue from Contracts with Customers (Topic 606)," which, as amended, created ASC Topic 606, "Revenue from Contracts with Customers," ("ASC 606"), also referred to as the new "Revenue Standard," on a retrospective basis, at the beginning of 2018, and as a result, recognition of revenue from the sale of vacation ownership products that is deemed collectible is deferred from the point in time at which the statutory rescission period expires to closing, when control of the vacation ownership product is transferred to the customer. In addition, the company aligned its assessment of collectibility of the transaction price for sales of vacation ownership products with its credit granting policies. The company elected the practical expedient to expense all marketing and sales costs as they are incurred. Its consolidated cost reimbursements revenues and expenses increased significantly, as all costs reimbursed to it by property owners' associations are now reported on a gross basis. In connection with the adoption of the new Revenue Standard, the company also reclassified certain revenues and expenses.

Summary Restated 2017 Financial Results Reflecting the Impact of Adopting the new Revenue Standard

The retrospective adoption of the new Revenue Standard resulted in the following restated quarterly financial results for 2017 for net income and adjusted EBITDA as highlighted below. Net income and adjusted EBITDA are reconciled to the quarterly 2017 reported results on pages A-10 through A-14 of the Financial Schedules.

 

Q1 2017

 

Q2 2017

 

Q3 2017

 

Q4 2017

$ in millions

Reported

Adjusted

 

Reported

Adjusted

 

Reported

Adjusted

 

Reported

Adjusted

Net income

$33.7

$27.9

 

$44.3

$48.2

 

$40.8

$47.0

 

$108.0

$112.2

Adjusted EBITDA

$62.1

$53.6

 

$77.9

$83.6

 

$74.0

$84.8

 

$66.1

$72.0

Outlook

The company is reaffirming guidance for the full year 2018 on the non-GAAP financial measures provided below.  Pages A-1 through A-17 of the Financial Schedules reconcile the non-GAAP financial measures set forth below to the following full year 2018 expected GAAP results:

Net income

$182 million

to

$193 million

Fully diluted EPS

$6.61

to

$7.01

Net cash provided by operating activities

$180 million

to

$205 million

       

Adjusted net income

$184 million

to

$195 million

Adjusted fully diluted EPS

$6.69

to

$7.09

Adjusted EBITDA

$310 million

to

$325 million

Adjusted free cash flow

$185 million

to

$215 million

Contract sales growth

7 percent

to

12 percent

First Quarter 2018 Earnings Conference Call

The company will hold a conference call at 10:00 a.m. ET today to discuss these results and the guidance for full year 2018. 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 13678402. 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 May 3, 2018 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

MARRIOTT VACATIONS WORLDWIDE CORPORATION

FINANCIAL SCHEDULES

QUARTER 1, 2018

 

TABLE OF CONTENTS

 

Consolidated Statements of Income

A-1

Adjusted Net Income, Adjusted Earnings Per Share - Diluted, EBITDA and Adjusted EBITDA

A-2

North America Segment Financial Results

A-3

Asia Pacific Segment Financial Results

A-4

Europe Segment Financial Results

A-5

Corporate and Other Financial Results

A-6

Consolidated Contract Sales to Sale of Vacation Ownership Products and Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses)

A-7

North America Contract Sales to Sale of Vacation Ownership Products and Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses)

A-8

2018 Outlook - Adjusted Net Income, Adjusted Earnings Per Share - Diluted, Adjusted EBITDA and Adjusted Free Cash Flow

A-9

ASC 606 Adjustments - Full Year 2017

A-10

ASC 606 Adjustments - First Quarter 2017

A-11

ASC 606 Adjustments - Second Quarter 2017

A-12

ASC 606 Adjustments - Third Quarter 2017

A-13

ASC 606 Adjustments - Fourth Quarter 2017

A-14

ASC 606 Adjustments - Consolidated Adjusted Development Margin

A-15

Non-GAAP Financial Measures

A-16

Consolidated Balance Sheets

A-18

Consolidated Statements of Cash Flows

A-19

 

NOTE:  Contract sales consist of the total amount of vacation ownership product sales under contract signed during the period where we have received a down payment of at least ten percent of the contract price, reduced by actual rescissions during the period, inclusive of contracts associated with sales of vacation ownership products on behalf of third parties, which we refer to as "resales contract sales".

 

 

A-1

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

REVENUES

     

Sale of vacation ownership products

$

174,789

   

$

163,877

 

Resort management and other services

70,180

   

67,419

 

Financing

35,482

   

32,111

 

Rental

74,210

   

67,679

 

Cost reimbursements

216,188

   

197,214

 

TOTAL REVENUES

570,849

   

528,300

 

EXPENSES

     

Cost of vacation ownership products

46,363

   

43,771

 

Marketing and sales

105,934

   

97,498

 

Resort management and other services

37,778

   

37,471

 

Financing

4,248

   

4,017

 

Rental

55,899

   

53,708

 

General and administrative

29,435

   

27,539

 

Litigation settlement

(103)

   

 

Consumer financing interest

6,606

   

5,938

 

Royalty fee

14,824

   

16,070

 

Cost reimbursements

216,188

   

197,214

 

TOTAL EXPENSES

517,172

   

483,226

 

Gains (losses) and other income (expense), net

446

   

(59)

 

Interest expense

(4,317)

   

(781)

 

Other

(3,116)

   

(369)

 

INCOME BEFORE INCOME TAXES

46,690

   

43,865

 

Provision for income taxes

(10,709)

   

(15,975)

 

NET INCOME

$

35,981

   

$

27,890

 
       

Earnings per share - Basic

$

1.35

   

$

1.02

 

Earnings per share - Diluted

$

1.32

   

$

1.00

 
       

Basic Shares

26,685

   

27,251

 

Diluted Shares

27,306

   

27,900

 
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

Contract sales

$

203,661

   

$

199,618

 
 

NOTE: Earnings per share - Basic and Earnings per share - Diluted are calculated using whole dollars.

 

 

A-2

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In thousands, except per share amounts)

 

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED

 
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

Net income

$

35,981

   

$

27,890

 

Less certain items:

     

Acquisition costs

3,160

   

412

 

Litigation settlement

(103)

   

 

(Gains) losses and other (income) expense, net

(446)

   

59

 

Certain items before provision for income taxes

2,611

   

471

 

Provision for income taxes on certain items

(629)

   

(173)

 

Adjusted net income **

$

37,963

   

$

28,188

 

Earnings per share - Diluted

$

1.32

   

$

1.00

 

Adjusted earnings per share - Diluted **

$

1.39

   

$

1.01

 

Diluted Shares

27,306

   

27,900

 
 

EBITDA AND ADJUSTED EBITDA

 
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

Net income

$

35,981

   

$

27,890

 

Interest expense 1

4,317

   

781

 

Tax provision

10,709

   

15,975

 

Depreciation and amortization

5,601

   

5,191

 

EBITDA **

56,608

   

49,837

 

Non-cash share-based compensation

3,601

   

3,276

 

Certain items before provision for income taxes

2,611

   

471

 

Adjusted EBITDA **

$

62,820

   

$

53,584

 
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Interest expense excludes consumer financing interest expense.

 

 

A-3

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA SEGMENT

(In thousands)

 
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

REVENUES

     

Sale of vacation ownership products

$

160,696

   

$

151,709

 

Resort management and other services

63,531

   

62,073

 

Financing

33,529

   

30,239

 

Rental

68,075

   

62,485

 

Cost reimbursements

202,626

   

181,566

 

TOTAL REVENUES

528,457

   

488,072

 

EXPENSES

     

Cost of vacation ownership products

40,985

   

38,923

 

Marketing and sales

93,383

   

87,422

 

Resort management and other services

32,283

   

32,969

 

Rental

47,183

   

46,054

 

Litigation settlement

(211)

   

 

Royalty fee

1,837

   

2,690

 

Cost reimbursements

202,626

   

181,566

 

TOTAL EXPENSES

418,086

   

389,624

 

Losses and other expense, net

(14)

   

(34)

 

Other

(2,451)

   

51

 

SEGMENT FINANCIAL RESULTS

$

107,906

   

$

98,465

 
       

SEGMENT FINANCIAL RESULTS

$

107,906

   

$

98,465

 

Less certain items:

     

Acquisition costs

2,500

   

 

Litigation settlement

(211)

   

 

Losses and other expense, net

14

   

34

 

Certain items

2,303

   

34

 

ADJUSTED SEGMENT FINANCIAL RESULTS **

$

110,209

   

$

98,499

 
       
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

Contract sales

$

187,144

   

$

183,220

 
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

 

A-4

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASIA PACIFIC SEGMENT

(In thousands)

 
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

REVENUES

     

Sale of vacation ownership products

$

11,246

   

$

9,155

 

Resort management and other services

1,313

   

942

 

Financing

1,214

   

1,123

 

Rental

3,325

   

2,904

 

Cost reimbursements

1,766

   

1,110

 

TOTAL REVENUES

18,864

   

15,234

 

EXPENSES

     

Cost of vacation ownership products

3,146

   

2,058

 

Marketing and sales

8,637

   

6,763

 

Resort management and other services

1,111

   

872

 

Rental

5,026

   

4,326

 

Royalty fee

253

   

228

 

Cost reimbursements

1,766

   

1,110

 

TOTAL EXPENSES

19,939

   

15,357

 

Losses and other expense, net

   

(20)

 

Other

(5)

   

(8)

 

SEGMENT FINANCIAL RESULTS

$

(1,080)

   

$

(151)

 
       

SEGMENT FINANCIAL RESULTS

$

(1,080)

   

$

(151)

 

Less certain items:

     

Losses and other expense, net

   

20

 

Certain items

   

20

 

ADJUSTED SEGMENT FINANCIAL RESULTS **

$

(1,080)

   

$

(131)

 
       
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

Contract sales

$

12,343

   

$

11,948

 
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

 

A-5

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

EUROPE SEGMENT

(In thousands)

 
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

REVENUES

     

Sale of vacation ownership products

$

2,847

   

$

3,013

 

Resort management and other services

5,336

   

4,404

 

Financing

739

   

749

 

Rental

2,810

   

2,290

 

Cost reimbursements

11,796

   

14,538

 

TOTAL REVENUES

23,528

   

24,994

 

EXPENSES

     

Cost of vacation ownership products

410

   

555

 

Marketing and sales

3,914

   

3,313

 

Resort management and other services

4,384

   

3,630

 

Rental

3,690

   

3,328

 

Litigation settlement

108

   

 

Royalty fee

40

   

46

 

Cost reimbursements

11,796

   

14,538

 

TOTAL EXPENSES

24,342

   

25,410

 

SEGMENT FINANCIAL RESULTS

$

(814)

   

$

(416)

 
       

SEGMENT FINANCIAL RESULTS

$

(814)

   

$

(416)

 

Less certain items:

     

Litigation settlement

108

   

 

Certain items

108

   

 

ADJUSTED SEGMENT FINANCIAL RESULTS **

$

(706)

   

$

(416)

 
       
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

Contract sales

$

4,174

   

$

4,450

 
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

 

A-6

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CORPORATE AND OTHER

(In thousands)

 
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

EXPENSES

     

Cost of vacation ownership products

$

1,822

   

$

2,235

 

Financing

4,248

   

4,017

 

General and administrative

29,435

   

27,539

 

Consumer financing interest

6,606

   

5,938

 

Royalty fee

12,694

   

13,106

 

TOTAL EXPENSES

54,805

   

52,835

 

Gains (losses) and other income (expense), net

460

   

(5)

 

Interest expense

(4,317)

   

(781)

 

Other

(660)

   

(412)

 

TOTAL FINANCIAL RESULTS

$

(59,322)

   

$

(54,033)

 
       

TOTAL FINANCIAL RESULTS

$

(59,322)

   

$

(54,033)

 

Less certain items:

     

Acquisition costs

660

   

412

 

(Gains) losses and other (income) expense, net

(460)

   

5

 

Certain items

200

   

417

 

ADJUSTED FINANCIAL RESULTS **

$

(59,122)

   

$

(53,616)

 
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

 

A-7

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)

 
 

Three Months Ended

($ in thousands)

March 31, 2018

 

March 31, 2017

Contract sales

$

203,661

   

$

199,618

 

Less resales contract sales

(7,540)

   

(5,784)

 

Contract sales, net of resales

196,121

   

193,834

 

Plus:

     

Settlement revenue 1

3,514

   

3,339

 

Resales revenue 1

2,207

   

1,585

 

Revenue recognition adjustments:

     

Reportability

(11,509)

   

(14,148)

 

Sales reserve

(8,875)

   

(12,723)

 

Other 2

(6,669)

   

(8,010)

 

Sale of vacation ownership products

$

174,789

   

$

163,877

 
   

1

Previously included in Resort management and other services revenue prior to the adoption of the new Revenue Standard.

2

Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue.

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED ADJUSTED DEVELOPMENT MARGIN

(ADJUSTED SALE OF VACATION OWNERSHIP PRODUCTS NET OF EXPENSES)

(In thousands)

 
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

Sale of vacation ownership products

$

174,789

   

$

163,877

 

Less:

     

Cost of vacation ownership products

46,363

   

43,771

 

Marketing and sales

105,934

   

97,498

 

Development margin

22,492

   

22,608

 

Revenue recognition reportability adjustment

7,948

   

9,806

 

Adjusted development margin **

$

30,440

   

$

32,414

 

Development margin percentage 1

12.9%

   

13.8%

 

Adjusted development margin percentage

16.4%

   

18.4%

 
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Development margin percentage represents Development margin divided by Sale of vacation ownership products.

 

 

A-8

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)

 
 

Three Months Ended

($ in thousands)

March 31, 2018

 

March 31, 2017

Contract sales

$

187,144

   

$

183,220

 

Less resales contract sales

(7,212)

   

(5,784)

 

Contract sales, net of resales

179,932

   

177,436

 

Plus:

     

Settlement revenue 1

3,492

   

3,287

 

Resales revenue 1

2,130

   

1,585

 

Revenue recognition adjustments:

     

Reportability

(10,904)

   

(13,599)

 

Sales reserve

(7,974)

   

(9,767)

 

Other 2

(5,980)

   

(7,233)

 

Sale of vacation ownership products

$

160,696

   

$

151,709

 
   

1

Previously included in Resort management and other services revenue prior to the adoption of the new Revenue Standard.

2

Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue.

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA ADJUSTED DEVELOPMENT MARGIN

(ADJUSTED SALE OF VACATION OWNERSHIP PRODUCTS NET OF EXPENSES)

(In thousands)

 
 

Three Months Ended

 

March 31, 2018

 

March 31, 2017

Sale of vacation ownership products

$

160,696

   

$

151,709

 

Less:

     

Cost of vacation ownership products

40,985

   

38,923

 

Marketing and sales

93,383

   

87,422

 

Development margin

26,328

   

25,364

 

Revenue recognition reportability adjustment

7,527

   

9,410

 

Adjusted development margin **

$

33,855

   

$

34,774

 

Development margin percentage 1

16.4%

   

16.7%

 

Adjusted development margin percentage

19.9%

   

21.2%

 
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Development margin percentage represents Development margin divided by Sale of vacation ownership products.

 

 

A-9

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

2018 ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED OUTLOOK

(In millions, except per share amounts)

 
 

Fiscal Year
2018 (low)

 

Fiscal Year
2018 (high)

Net income

$

182

   

$

193

 

Adjustments to reconcile Net income to Adjusted net income

     

Certain items 1

3

   

3

 

Provision for income taxes on adjustments to net income

(1)

   

(1)

 

Adjusted net income **

$

184

   

$

195

 

Earnings per share - Diluted 2

$

6.61

   

$

7.01

 

Adjusted earnings per share - Diluted **, 2

$

6.69

   

$

7.09

 

Diluted shares 2

27.5

   

27.5

 
   

1

Certain items adjustment includes $3 million of acquisition costs.

2

Earnings per share - Diluted, Adjusted earnings per share - Diluted, and Diluted shares outlook includes the impact of share repurchase activity only through May 1, 2018.

 

2018 ADJUSTED EBITDA OUTLOOK

 
 

Fiscal Year
2018 (low)

 

Fiscal Year
2018 (high)

Net income

$

182

   

$

193

 

Interest expense 1

17

   

17

 

Tax provision

65

   

69

 

Depreciation and amortization

26

   

26

 

EBITDA **

290

   

305

 

Non-cash share-based compensation

17

   

17

 

Certain items 2

3

   

3

 

Adjusted EBITDA **

$

310

   

$

325

 
   

1

Interest expense excludes consumer financing interest expense.

2

Certain items adjustment includes $3 million of acquisition costs.

 

2018 ADJUSTED FREE CASH FLOW OUTLOOK

 
 

Fiscal Year

2018 (low)

 

Fiscal Year

2018 (high)

Net cash provided by operating activities

$

180

   

$

205

 

Capital expenditures for property and equipment (excluding inventory):

     

New sales centers 1

(10)

   

(10)

 

Other

(27)

   

(32)

 

Borrowings from securitization transactions

360

   

380

 

Repayment of debt related to securitizations

(280)

   

(290)

 

Free cash flow **

223

   

253

 

Adjustments:

     

Net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility 2

   

(2)

 

Inventory / other payments associated with capital efficient inventory arrangements

(38)

   

(40)

 

Change in restricted cash

   

4

 

Adjusted free cash flow **

$

185

   

$

215

 
   

1

Represents the incremental investment in new sales centers.

2

Represents the net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility between the 2017 and 2018 year ends.

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

 

A-10

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASC 606 ADJUSTMENTS - FULL YEAR 2017

(In thousands)

 
 

2017
As Reported

 

Adjustments

 

2017
As Adjusted

 
     

REVENUES

           

Sale of vacation ownership products

$

727,940

   

$

29,498

   

$

757,438

   

Resort management and other services

306,196

   

(27,358)

   

278,838

   

Financing

134,906

   

   

134,906

   

Rental

322,902

   

(60,863)

   

262,039

   

Cost reimbursements

460,001

   

289,601

   

749,602

   

TOTAL REVENUES

1,951,945

   

230,878

   

2,182,823

   

EXPENSES

           

Cost of vacation ownership products

177,813

   

17,034

   

194,847

   

Marketing and sales

408,715

   

(13,825)

   

394,890

   

Resort management and other services

172,137

   

(17,913)

   

154,224

   

Financing

17,951

   

   

17,951

   

Rental

281,352

   

(57,970)

   

223,382

   

General and administrative

110,225

   

   

110,225

   

Litigation settlement

4,231

   

   

4,231

   

Consumer financing interest

25,217

   

   

25,217

   

Royalty fee

63,021

   

   

63,021

   

Cost reimbursements

460,001

   

289,601

   

749,602

   

TOTAL EXPENSES

1,720,663

   

216,927

   

1,937,590

   

Gains and other income, net

5,772

   

   

5,772

   

Interest expense

(9,572)

   

   

(9,572)

   

Other

(1,599)

   

   

(1,599)

   

INCOME BEFORE INCOME TAXES

225,883

   

13,951

   

239,834

   

Benefit (provision) for income taxes

895

   

(5,405)

   

(4,510)

   

NET INCOME

$

226,778

   

$

8,546

   

$

235,324

   
             

NET INCOME

$

226,778

   

$

8,546

   

$

235,324

   

Interest expense 1

9,572

   

   

9,572

   

Tax (benefit) provision

(895)

   

5,405

   

4,510

   

Depreciation and amortization

21,494

   

   

21,494

   

EBITDA **

256,949

   

13,951

   

270,900

   

Non-cash share-based compensation

16,286

   

   

16,286

   

Certain items before income taxes

6,805

   

   

6,805

   

ADJUSTED EBITDA **

$

280,040

   

$

13,951

   

$

293,991

   
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Interest expense excludes consumer financing interest expense.

 

 

A-11

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASC 606 ADJUSTMENTS - FIRST QUARTER 2017

(In thousands)

 
 

Q1 2017
As Reported

 

Adjustments

 

Q1 2017
As Adjusted

 
     

REVENUES

           

Sale of vacation ownership products

$

172,155

   

$

(8,278)

   

$

163,877

   

Resort management and other services

72,964

   

(5,545)

   

67,419

   

Financing

32,111

   

   

32,111

   

Rental

85,256

   

(17,577)

   

67,679

   

Cost reimbursements

123,633

   

73,581

   

197,214

   

TOTAL REVENUES

486,119

   

42,181

   

528,300

   

EXPENSES

           

Cost of vacation ownership products

42,620

   

1,151

   

43,771

   

Marketing and sales

100,661

   

(3,163)

   

97,498

   

Resort management and other services

41,645

   

(4,174)

   

37,471

   

Financing

4,017

   

   

4,017

   

Rental

70,432

   

(16,724)

   

53,708

   

General and administrative

27,539

   

   

27,539

   

Consumer financing interest

5,938

   

   

5,938

   

Royalty fee

16,070

   

   

16,070

   

Cost reimbursements

123,633

   

73,581

   

197,214

   

TOTAL EXPENSES

432,555

   

50,671

   

483,226

   

Losses and other expense, net

(59)

   

   

(59)

   

Interest expense

(781)

   

   

(781)

   

Other

(369)

   

   

(369)

   

INCOME BEFORE INCOME TAXES

52,355

   

(8,490)

   

43,865

   

Provision for income taxes

(18,655)

   

2,680

   

(15,975)

   

NET INCOME

$

33,700

   

$

(5,810)

   

$

27,890

   
             

NET INCOME

$

33,700

   

$

(5,810)

   

$

27,890

   

Interest expense 1

781

   

   

781

   

Tax provision

18,655

   

(2,680)

   

15,975

   

Depreciation and amortization

5,191

   

   

5,191

   

EBITDA **

58,327

   

(8,490)

   

49,837

   

Non-cash share-based compensation

3,276

   

   

3,276

   

Certain items before income taxes

471

   

   

471

   

ADJUSTED EBITDA **

$

62,074

   

$

(8,490)

   

$

53,584

   
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Interest expense excludes consumer financing interest expense.

 

 

A-12

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASC 606 ADJUSTMENTS - SECOND QUARTER 2017

(In thousands)

 
 

Q2 2017
As Reported

 

Adjustments

 

Q2 2017
As Adjusted

 
     

REVENUES

           

Sale of vacation ownership products

$

191,010

   

$

10,846

   

$

201,856

   

Resort management and other services

79,158

   

(7,218)

   

71,940

   

Financing

32,530

   

   

32,530

   

Rental

84,188

   

(14,898)

   

69,290

   

Cost reimbursements

110,734

   

76,086

   

186,820

   

TOTAL REVENUES

497,620

   

64,816

   

562,436

   

EXPENSES

           

Cost of vacation ownership products

46,143

   

4,882

   

51,025

   

Marketing and sales

104,029

   

(4,861)

   

99,168

   

Resort management and other services

44,008

   

(4,595)

   

39,413

   

Financing

3,449

   

   

3,449

   

Rental

70,163

   

(12,407)

   

57,756

   

General and administrative

29,534

   

   

29,534

   

Litigation settlement

183

   

   

183

   

Consumer financing interest

5,654

   

   

5,654

   

Royalty fee

16,307

   

   

16,307

   

Cost reimbursements

110,734

   

76,086

   

186,820

   

TOTAL EXPENSES

430,204

   

59,105

   

489,309

   

Losses and other expense, net

(166)

   

   

(166)

   

Interest expense

(1,757)

   

   

(1,757)

   

Other

(100)

   

   

(100)

   

INCOME BEFORE INCOME TAXES

65,393

   

5,711

   

71,104

   

Provision for income taxes

(21,117)

   

(1,801)

   

(22,918)

   

NET INCOME

$

44,276

   

$

3,910

   

$

48,186

   
             

NET INCOME

$

44,276

   

$

3,910

   

$

48,186

   

Interest expense 1

1,757

   

   

1,757

   

Tax provision

21,117

   

1,801

   

22,918

   

Depreciation and amortization

5,001

   

   

5,001

   

EBITDA **

72,151

   

5,711

   

77,862

   

Non-cash share-based compensation

5,175

   

   

5,175

   

Certain items before income taxes

548

   

   

548

   

ADJUSTED EBITDA **

$

77,874

   

$

5,711

   

$

83,585

   
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Interest expense excludes consumer financing interest expense.

 

 

A-13

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASC 606 ADJUSTMENTS - THIRD QUARTER 2017

(In thousands)

 
 

Q3 2017
As Reported

 

Adjustments

 

Q3 2017
As Adjusted

 
     

REVENUES

           

Sale of vacation ownership products

$

180,522

   

$

2,886

   

$

183,408

   

Resort management and other services

76,882

   

(7,044)

   

69,838

   

Financing

34,685

   

   

34,685

   

Rental

81,177

   

(14,896)

   

66,281

   

Cost reimbursements

113,724

   

62,745

   

176,469

   

TOTAL REVENUES

486,990

   

43,691

   

530,681

   

EXPENSES

           

Cost of vacation ownership products

42,826

   

2,996

   

45,822

   

Marketing and sales

100,527

   

(4,687)

   

95,840

   

Resort management and other services

44,696

   

(4,535)

   

40,161

   

Financing

5,062

   

   

5,062

   

Rental

71,048

   

(23,654)

   

47,394

   

General and administrative

26,666

   

   

26,666

   

Litigation settlement

2,033

   

   

2,033

   

Consumer financing interest

6,498

   

   

6,498

   

Royalty fee

15,220

   

   

15,220

   

Cost reimbursements

113,724

   

62,745

   

176,469

   

TOTAL EXPENSES

428,300

   

32,865

   

461,165

   

Gains and other income, net

6,977

   

   

6,977

   

Interest expense

(2,642)

   

   

(2,642)

   

Other

104

   

   

104

   

INCOME BEFORE INCOME TAXES

63,129

   

10,826

   

73,955

   

Provision for income taxes

(22,367)

   

(4,571)

   

(26,938)

   

NET INCOME

$

40,762

   

$

6,255

   

$

47,017

   
             

NET INCOME

$

40,762

   

$

6,255

   

$

47,017

   

Interest expense 1

2,642

   

   

2,642

   

Tax provision

22,367

   

4,571

   

26,938

   

Depreciation and amortization

5,610

   

   

5,610

   

EBITDA **

71,381

   

10,826

   

82,207

   

Non-cash share-based compensation

3,898

   

   

3,898

   

Certain items before income taxes

(1,327)

   

   

(1,327)

   

ADJUSTED EBITDA **

$

73,952

   

$

10,826

   

$

84,778

   
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Interest expense excludes consumer financing interest expense.

 

 

A-14

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASC 606 ADJUSTMENTS - FOURTH QUARTER 2017

(In thousands)

 
 

Q4 2017
As Reported

 

Adjustments

 

Q4 2017
As Adjusted

 
     

REVENUES

           

Sale of vacation ownership products

$

184,253

   

$

24,044

   

$

208,297

   

Resort management and other services

77,192

   

(7,551)

   

69,641

   

Financing

35,580

   

   

35,580

   

Rental

72,281

   

(13,492)

   

58,789

   

Cost reimbursements

111,910

   

77,189

   

189,099

   

TOTAL REVENUES

481,216

   

80,190

   

561,406

   

EXPENSES

           

Cost of vacation ownership products

46,224

   

8,005

   

54,229

   

Marketing and sales

103,498

   

(1,114)

   

102,384

   

Resort management and other services

41,788

   

(4,609)

   

37,179

   

Financing

5,423

   

   

5,423

   

Rental

69,709

   

(5,185)

   

64,524

   

General and administrative

26,486

   

   

26,486

   

Litigation settlement

2,015

   

   

2,015

   

Consumer financing interest

7,127

   

   

7,127

   

Royalty fee

15,424

   

   

15,424

   

Cost reimbursements

111,910

   

77,189

   

189,099

   

TOTAL EXPENSES

429,604

   

74,286

   

503,890

   

Losses and other expense, net

(980)

   

   

(980)

   

Interest expense

(4,392)

   

   

(4,392)

   

Other

(1,234)

   

   

(1,234)

   

INCOME BEFORE INCOME TAXES

45,006

   

5,904

   

50,910

   

Benefit for income taxes

63,034

   

(1,713)

   

61,321

   

NET INCOME

$

108,040

   

$

4,191

   

$

112,231

   
             

NET INCOME

$

108,040

   

$

4,191

   

$

112,231

   

Interest expense 1

4,392

   

   

4,392

   

Tax benefit

(63,034)

   

1,713

   

(61,321)

   

Depreciation and amortization

5,692

   

   

5,692

   

EBITDA **

55,090

   

5,904

   

60,994

   

Non-cash share-based compensation

3,937

   

   

3,937

   

Certain items before income taxes

7,113

   

   

7,113

   

ADJUSTED EBITDA **

$

66,140

   

$

5,904

   

$

72,044

   
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Interest expense excludes consumer financing interest expense.

 

 

A-15

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASC 606 ADJUSTMENTS - CONSOLIDATED ADJUSTED DEVELOPMENT MARGIN

(In thousands)

 
 

Q1 2017

 

Q2 2017

 

Q3 2017

 

Q4 2017

 

2017

Sale of vacation ownership products

$

163,877

   

$

201,856

   

$

183,408

   

$

208,297

   

$

757,438

 

Less:

                 

Cost of vacation ownership products

43,771

   

51,025

   

45,822

   

54,229

   

194,847

 

Marketing and sales

97,498

   

99,168

   

95,840

   

102,384

   

394,890

 

Development margin

22,608

   

51,663

   

41,746

   

51,684

   

167,701

 

Revenue recognition reportability adjustment

9,806

   

(6,858)

   

(805)

   

(16,059)

   

(13,916)

 

Certain items

   

   

1,754

   

1,160

   

2,914

 

Adjusted development margin **

$32,414

   

$44,805

   

$42,695

   

$36,785

   

$156,699

 

Development margin percentage 1

13.8%

   

25.6%

   

22.8%

   

24.8%

   

22.1%

 

Adjusted development margin percentage

18.4%

   

23.2%

   

23.4%

   

19.6%

   

21.2%

 
   

**

Denotes non-GAAP financial measures. Please see pages A-16 and A-17 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Development margin percentage represents Development margin divided by Sale of vacation ownership products.

 

 

A-16

 

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 United States generally accepted accounting principles ("GAAP"). We discuss our reasons for reporting these non-GAAP financial measures below, and the financial schedules 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, 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.

 

Adjusted Net Income

 

We evaluate non-GAAP financial measures, including Adjusted Net Income, Adjusted EBITDA, and Adjusted Development Margin, that exclude certain items in the quarters ended March 31, 2018 and March 31, 2017, 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 Ended March 31, 2018

 

In our Statement of Income for the quarter ended March 31, 2018, we recorded $2.6 million of net pre-tax items, which included $3.2 million of acquisition costs, including $2.5 million of acquisition costs associated with the anticipated future capital efficient acquisition of the operating property in San Francisco, California and $0.7 million of other acquisition costs, partially offset by a $0.5 million favorable true up of previously recorded costs associated with Hurricane Irma and Hurricane Maria (recorded in gains and other income) and a $0.1 million true up of previously recorded litigation settlement expenses.

 

Certain items - Quarter Ended March 31, 2017

 

In our Statement of Income for the quarter ended March 31, 2017, we recorded $0.5 million of net pre-tax items, which included $0.4 million of acquisition costs and $0.1 million of losses and other expense.

 

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 of Adjusted Net Income above. 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.

 

A-17

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NON-GAAP FINANCIAL MEASURES

 

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

 

EBITDA is defined as earnings, or net income, before interest expense (excluding consumer financing interest expense), 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 because the associated debt is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us. Further, we consider consumer financing interest expense 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 above, and excludes non-cash 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 other vacation ownership companies.

 

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 organizational and separation related, 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.

 

A-18

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 
 

March 31, 2018

 

December 31, 2017

ASSETS

     

Cash and cash equivalents

$

323,831

   

$

409,059

 

Restricted cash (including $34,987 and $32,321 from VIEs, respectively)

61,298

   

81,553

 

Accounts receivable, net (including $4,816 and $5,639 from VIEs, respectively)

63,038

   

91,659

 

Vacation ownership notes receivable, net (including $725,835 and $814,011 from VIEs, respectively)

1,132,783

   

1,114,552

 

Inventory

726,969

   

728,379

 

Property and equipment

251,264

   

252,727

 

Other (including $22,497 and $13,708 from VIEs, respectively)

200,768

   

166,653

 

TOTAL ASSETS

$

2,759,951

   

$

2,844,582

 
       

LIABILITIES AND EQUITY

     

Accounts payable

$

79,959

   

$

145,405

 

Advance deposits

96,647

   

84,087

 

Accrued liabilities (including $616 and $701 from VIEs, respectively)

121,975