August 3, 2017

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.

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

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:


2017


2016

First Quarter

91 days


84 days

Second Quarter

91 days


84 days

Third Quarter

92 days


84 days

Fourth Quarter

92 days


112 days

Full Year

366 days


364 days

 

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:

Net income

$154 million

to

$160 million

Fully diluted EPS

$5.48

to

$5.70

Net cash provided by operating activities

$115 million

to

$130 million

 

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


Current Guidance


Previous Guidance

Adjusted net income

$149 million

to

$155 million


$139 million

to

$148 million

Adjusted fully diluted EPS

$5.31

to

$5.52


$4.97

to

$5.29

Adjusted EBITDA

$282 million

to

$292 million


$276 million

to

$291 million

Adjusted free cash flow

$190 million

to

$210 million


$160 million

to

$180 million

Contract sales growth

12 percent

to

16 percent


9 percent

to

15 percent










 

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


MARRIOTT VACATIONS WORLDWIDE CORPORATION
FINANCIAL SCHEDULES
QUARTER 2, 2017 1


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

2017 Outlook - Adjusted Net Income, Adjusted Earnings Per Share - Diluted, Adjusted EBITDA and Adjusted Free Cash Flow

A-9

Non-GAAP Financial Measures

A-10

Consolidated Balance Sheets

A-12

Consolidated Statements of Cash Flows

A-13



1

Due to the change in the company's financial reporting calendar beginning in 2017, the 2017 second quarter 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 to June 17, 2016 (84 days), and the 2017 first half included the period from December 31, 2016 through June 30, 2017 (182 days) compared to the 2016 first half which included the period from January 2, 2016 to June 17, 2016 (168 days). Prior year results have not been restated for the change in fiscal calendar.


NOTE:  When presenting contract sales performance on a comparable basis, we adjusted the prior year period to include contract sales from the same calendar days as the current year period.

 


A-1
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)




Quarter Ended


Year to Date Ended


June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016


(91 days)


(84 days)


(182 days)


(168 days)

REVENUES








Sale of vacation ownership products

$

191,010



$

146,450



$

363,165



$

284,819


Resort management and other services

79,158



74,156



152,122



137,864


Financing

32,530



28,654



64,641



57,878


Rental

84,188



75,069



169,444



155,357


Cost reimbursements

110,734



98,842



234,367



206,375


TOTAL REVENUES

497,620



423,171



983,739



842,293


EXPENSES








Cost of vacation ownership products

46,143



33,753



88,763



69,370


Marketing and sales

104,029



78,919



204,690



157,331


Resort management and other services

44,008



44,007



85,653



83,870


Financing

3,449



2,621



7,466



7,201


Rental

70,163



66,028



140,595



130,688


General and administrative

29,534



25,361



57,073



50,720


Litigation settlement

183





183



(303)


Consumer financing interest

5,654



5,117



11,592



10,479


Royalty fee

16,307



14,026



32,377



27,383


Cost reimbursements

110,734



98,842



234,367



206,375


TOTAL EXPENSES

430,204



368,674



862,759



743,114


(Losses) gains and other (expense) income

(166)



10,668



(225)



10,675


Interest expense

(1,757)



(2,087)



(2,538)



(4,069)


Other

(100)



(1,911)



(469)



(4,453)


INCOME BEFORE INCOME TAXES

65,393



61,167



117,748



101,332


Provision for income taxes

(21,117)



(24,858)



(39,772)



(40,615)


NET INCOME

$

44,276



$

36,309



$

77,976



$

60,717










Earnings per share - Basic

$

1.62



$

1.28



$

2.86



$

2.11


Earnings per share - Diluted

$

1.58



$

1.26



$

2.79



$

2.08


Basic Shares

27,319



28,345



27,285



28,734


Diluted Shares

27,965



28,834



27,929



29,244















Quarter Ended


Year to Date Ended


June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016


(91 days)


(84 days)


(182 days)


(168 days)

Vacation ownership contract sales

$

209,892



$

165,992



$

403,726



$

319,486



NOTE: Earnings per share—Basic and Earnings per share—Diluted are calculated using whole dollars. We have reclassified certain prior year amounts to conform to our current period presentation. In addition, we reclassified certain revenues and expenses for the 2016 second quarter and 2016 first half to correct immaterial presentation errors within the following lines: Resort management and other services revenues, Resort management and other services expenses and General and administrative expenses.

 


A-2
MARRIOTT VACATIONS WORLDWIDE CORPORATION
(In thousands, except per share amounts)
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED





Quarter Ended


Year to Date Ended



June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016



(91 days)


(84 days)


(182 days)


(168 days)

Net income


$

44,276



$

36,309



$

77,976



$

60,717


Less certain items:









Acquisition costs


199



2,005



611



4,575


Operating results from the sold portion of the Surfers Paradise, Australia property




190





(275)


Litigation settlement


183





183



(303)


Losses (gains) and other expense (income)


166



(10,668)



225



(10,675)


Certain items before depreciation and provision for income taxes 1


548



(8,473)



1,019



(6,678)


Depreciation on the sold portion of the Surfers Paradise, Australia property




188





469


Provision for income taxes on certain items


(213)



3,261



(386)



2,482


Adjusted net income **


$

44,611



$

31,285



$

78,609



$

56,990











Earnings per share - Diluted


$

1.58



$

1.26



$

2.79



$

2.08


Adjusted earnings per share - Diluted **


$

1.60



$

1.08



$

2.81



$

1.95


Diluted Shares


27,965



28,834



27,929



29,244



EBITDA AND ADJUSTED EBITDA




Quarter Ended


Year to Date Ended



June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016



(91 days)


(84 days)


(182 days)


(168 days)

Net income


$

44,276



$

36,309



$

77,976



$

60,717


Interest expense 2


1,757



2,087



2,538



4,069


Tax provision


21,117



24,858



39,772



40,615


Depreciation and amortization


5,001



5,052



10,192



10,177


EBITDA **


72,151



68,306



130,478



115,578


Non-cash share-based compensation


5,175



4,332



8,451



6,856


Certain items before depreciation and provision for income taxes 1


548



(8,473)



1,019



(6,678)


Adjusted EBITDA **


$

77,874



$

64,165



$

139,948



$

115,756




**

Denotes non-GAAP financial measures. Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Please see pages A-10 and A-11 for additional information regarding these items. The certain items adjustments for the Adjusted EBITDA reconciliations exclude depreciation and the provision for income taxes on certain items included in the Adjusted Net Income reconciliations.

2

Interest expense excludes consumer financing interest expense.

 


A-3
MARRIOTT VACATIONS WORLDWIDE CORPORATION
NORTH AMERICA SEGMENT
(In thousands)




Quarter Ended


Year to Date Ended


June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016


(91 days)


(84 days)


(182 days)


(168 days)

REVENUES








Sale of vacation ownership products

$

175,847



$

132,473



$

332,504



$

257,157


Resort management and other services

71,057



63,296



138,594



119,709


Financing

30,719



26,853



60,958



54,261


Rental

75,990



65,629



155,130



138,137


Cost reimbursements

101,488



90,174



216,443



189,356


TOTAL REVENUES

455,101



378,425



903,629



758,620


EXPENSES








Cost of vacation ownership products

41,676



29,080



79,311



59,742


Marketing and sales

90,784



66,911



179,654



135,226


Resort management and other services

37,452



34,666



74,211



67,473


Rental

61,900



55,593



124,905



111,549


Litigation settlement







(303)


Royalty fee

3,038



2,254



5,728



3,940


Cost reimbursements

101,488



90,174



216,443



189,356


TOTAL EXPENSES

336,338



278,678



680,252



566,983


(Losses) gains and other (expense) income

(162)



12,317



(196)



12,324


Other

74



(1,733)



125



(4,013)


SEGMENT FINANCIAL RESULTS

$

118,675



$

110,331



$

223,306



$

199,948










SEGMENT FINANCIAL RESULTS

$

118,675



$

110,331



$

223,306



$

199,948


Less certain items:








Acquisition costs

27



1,829



27



4,137


Litigation settlement







(303)


Losses (gains) and other expense (income)

162



(12,317)



196



(12,324)


Certain items

189



(10,488)



223



(8,490)


ADJUSTED SEGMENT FINANCIAL RESULTS **

$

118,864



$

99,843



$

223,529



$

191,458











Quarter Ended


Year to Date Ended


June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016


(91 days)


(84 days)


(182 days)


(168 days)

Vacation ownership contract sales

$

190,883



$

145,600



$

368,319



$

285,250




**

Denotes non-GAAP financial measures. Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.


NOTE: We have reclassified certain prior year amounts to conform to our current period presentation. In addition, we reclassified certain revenues and expenses for the 2016 second quarter and 2016 first half to correct immaterial presentation errors within the following lines: Resort management and other services revenues, Resort management and other services expenses and General and administrative expenses. Further we have reclassified certain management and other services revenues between the North America and Asia Pacific segments.

 


A-4
MARRIOTT VACATIONS WORLDWIDE CORPORATION
ASIA PACIFIC SEGMENT
(In thousands)




Quarter Ended


Year to Date Ended


June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016


(91 days)


(84 days)


(182 days)


(168 days)

REVENUES








Sale of vacation ownership products

$

10,094



$

8,110



$

21,016



$

16,635


Resort management and other services

1,030



4,412



2,033



7,778


Financing

1,105



1,007



2,228



1,988


Rental

2,644



4,828



6,382



10,449


Cost reimbursements

724



685



1,871



1,558


TOTAL REVENUES

15,597



19,042



33,530



38,408


EXPENSES








Cost of vacation ownership products

1,866



1,597



3,955



3,306


Marketing and sales

8,717



6,695



16,918



12,906


Resort management and other services

1,060



4,145



2,153



7,646


Rental

4,097



6,766



8,234



12,554


Royalty fee

221



179



449



325


Cost reimbursements

724



685



1,871



1,558


TOTAL EXPENSES

16,685



20,067



33,580



38,295


Losses and other expense



(1,498)



(20)



(1,498)


Other

(2)



(21)



(10)



(229)


SEGMENT FINANCIAL RESULTS

$

(1,090)



$

(2,544)



$

(80)



$

(1,614)










SEGMENT FINANCIAL RESULTS

$

(1,090)



$

(2,544)



$

(80)



$

(1,614)


Less certain items:








Acquisition costs



19





227


Operating results from the sold portion of the Surfers Paradise, Australia property



378





194


Losses and other expense



1,498



20



1,498


Certain items



1,895



20



1,919


ADJUSTED SEGMENT FINANCIAL RESULTS **

$

(1,090)



$

(649)



$

(60)



$

305











Quarter Ended


Year to Date Ended


June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016


(91 days)


(84 days)


(182 days)


(168 days)

Vacation ownership contract sales

$

11,614



$

10,454



$

23,562



$

19,880




**

Denotes non-GAAP financial measures. Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.


NOTE: We have reclassified certain prior year amounts to conform to our current period presentation. In addition, we reclassified certain revenues and expenses for the 2016 second quarter and 2016 first half to correct immaterial presentation errors within the following lines: Resort management and other services revenues and Resort management and other services expenses. Further we have reclassified certain management and other services revenues between the North America and Asia Pacific segments.

 

 


A-5
MARRIOTT VACATIONS WORLDWIDE CORPORATION
EUROPE SEGMENT
(In thousands)




Quarter Ended


Year to Date Ended


June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016


(91 days)


(84 days)


(182 days)


(168 days)

REVENUES








Sale of vacation ownership products

$

5,069



$

5,867



$

9,645



$

11,027


Resort management and other services

7,071



6,448



11,495



10,377


Financing

706



794



1,455



1,629


Rental

5,554



4,612



7,932



6,771


Cost reimbursements

8,522



7,983



16,053



15,461


TOTAL REVENUES

26,922



25,704



46,580



45,265


EXPENSES








Cost of vacation ownership products

705



1,268



1,366



2,559


Marketing and sales

4,528



5,313



8,118



9,199


Resort management and other services

5,496



5,196



9,289



8,751


Rental

4,166



3,669



7,456



6,585


Royalty fee

79



118



125



167


Cost reimbursements

8,522



7,983



16,053



15,461


TOTAL EXPENSES

23,496



23,547



42,407



42,722


SEGMENT FINANCIAL RESULTS

$

3,426



$

2,157



$

4,173



$

2,543











Quarter Ended


Year to Date Ended


June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016


(91 days)


(84 days)


(182 days)


(168 days)

Vacation ownership contract sales

$

7,395



$

9,938



$

11,845



$

14,356




**

Denotes non-GAAP financial measures. Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.


NOTE: We have reclassified certain prior year amounts to conform to our current period presentation. In addition, we reclassified certain revenues and expenses for the 2016 second quarter and 2016 first half to correct immaterial presentation errors within the following lines: Resort management and other services revenues and Resort management and other services expenses.

 


A-6
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CORPORATE AND OTHER
(In thousands)




Quarter Ended


Year to Date Ended


June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016


(91 days)


(84 days)


(182 days)


(168 days)

EXPENSES








Cost of vacation ownership products

$

1,896



$

1,808



$

4,131



$

3,763


Financing

3,449



2,621



7,466



7,201


General and administrative

29,534



25,361



57,073



50,720


Litigation settlement

183





183




Consumer financing interest

5,654



5,117



11,592



10,479


Royalty fee

12,969



11,475



26,075



22,951


TOTAL EXPENSES

53,685



46,382



106,520



95,114


Losses and other expense

(4)



(151)



(9)



(151)


Interest expense

(1,757)



(2,087)



(2,538)



(4,069)


Other

(172)



(157)



(584)



(211)


TOTAL FINANCIAL RESULTS

$

(55,618)



$

(48,777)



$

(109,651)



$

(99,545)










TOTAL FINANCIAL RESULTS

$

(55,618)



$

(48,777)



$

(109,651)



$

(99,545)


Less certain items:








Acquisition costs

172



157



584



211


Litigation settlement

183





183




Losses and other expense

4



151



9



151


Certain items

359



308



776



362


ADJUSTED FINANCIAL RESULTS **

$

(55,259)



$

(48,469)



$

(108,875)



$

(99,183)




**

Denotes non-GAAP financial measures. Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.


NOTE: We have reclassified certain prior year amounts to conform to our current period presentation. In addition, we reclassified certain revenues and expenses for the 2016 second quarter and 2016 first half to correct immaterial presentation errors within the following lines: Resort management and other services revenues, Resort management and other services expenses and General and administrative expenses.

 

A-7
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS
(In thousands)





Quarter Ended


Year to Date Ended



June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016



(91 days)


(84 days)


(182 days)


(168 days)

Vacation ownership contract sales


$

209,892



$

165,992



$

403,726



$

319,486


Revenue recognition adjustments:









Reportability 1


4,045



1,179



15



1,965


Sales reserve 2


(14,636)



(11,352)



(26,857)



(19,575)


Other 3


(8,291)



(9,369)



(13,719)



(17,057)


Sale of vacation ownership products


$

191,010



$

146,450



$

363,165



$

284,819




1

Adjustment for lack of required downpayment or contract sales in rescission period.

2

Represents allowance for bad debts for our financed vacation ownership product sales, which we also refer to as sales reserve.

3

Adjustment for sales incentives that will not be recognized as 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)





Quarter Ended


Year to Date Ended



June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016



(91 days)


(84 days)


(182 days)


(168 days)

Sale of vacation ownership products


$

191,010



$

146,450



$

363,165



$

284,819


Less:









Cost of vacation ownership products


46,143



33,753



88,763



69,370


Marketing and sales


104,029



78,919



204,690



157,331


Development margin


40,838



33,778



69,712



58,118


Revenue recognition reportability adjustment


(2,662)



(726)



27



(1,326)


Adjusted development margin **


$

38,176



$

33,052



$

69,739



$

56,792


Development margin percentage 1


21.4%



23.1%



19.2%



20.4%


Adjusted development margin percentage


20.4%



22.8%



19.2%



20.1%




**

Denotes non-GAAP financial measures. Please see pages A-10 and A-11 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)





Quarter Ended


Year to Date Ended



June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016



(91 days)


(84 days)


(182 days)


(168 days)

Vacation ownership contract sales


$

190,883



$

145,600



$

368,319



$

285,250


Revenue recognition adjustments:









Reportability 1


5,135



3,783



441



3,871


Sales reserve 2


(12,131)



(7,631)



(22,813)



(15,037)


Other 3


(8,040)



(9,279)



(13,443)



(16,927)


Sale of vacation ownership products


$

175,847



$

132,473



$

332,504



$

257,157




1

Adjustment for lack of required downpayment or contract sales in rescission period.

2

Represents allowance for bad debts for our financed vacation ownership product sales, which we also refer to as sales reserve.

3

Adjustment for sales incentives that will not be recognized as 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)





Quarter Ended


Year to Date Ended



June 30, 2017


June 17, 2016


June 30, 2017


June 17, 2016



(91 days)


(84 days)


(182 days)


(168 days)

Sale of vacation ownership products


$

175,847



$

132,473



$

332,504



$

257,157


Less:









Cost of vacation ownership products


41,676



29,080



79,311



59,742


Marketing and sales


90,784



66,911



179,654



135,226


Development margin


43,387



36,482



73,539



62,189


Revenue recognition reportability adjustment


(3,475)



(2,417)



(289)



(2,473)


Adjusted development margin **


$

39,912



$

34,065



$

73,250



$

59,716


Development margin percentage 1


24.7%



27.5%



22.1%



24.2%


Adjusted development margin percentage


23.4%



26.5%



22.1%



23.6%




**

Denotes non-GAAP financial measures. Please see pages A-10 and A-11 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
(In millions, except per share amounts)
2017 ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED OUTLOOK





Fiscal Year
2017 (low)


Fiscal Year
2017 (high)

Net income


$

154



$

160


Adjustments to reconcile Net income to Adjusted net income







Certain items1


1



1


Business interruption insurance proceeds2


(9)



(9)


Provision for income taxes on adjustments to net income


3



3


Adjusted net income **


$

149



$

155


Earnings per share - Diluted3


$

5.48



$

5.70


Adjusted earnings per share - Diluted **, 3


$

5.31



$

5.52


Diluted shares2


28.1



28.1




1

Certain items adjustment primarily includes approximately $1 million of after tax combined acquisition costs, litigation settlements and losses and other expenses that have been incurred in the first half of 2017.

2

Includes estimated net business interruption insurance proceeds associated with Hurricane Matthew.

3

Earnings per share - Diluted, Adjusted earnings per share - Diluted, and Diluted shares outlook includes the impact of share repurchase activity only through August 3, 2017.

 

2017 ADJUSTED EBITDA OUTLOOK




Fiscal Year
2017 (low)


Fiscal Year
2017 (high)

Net income


$

154



$

160


Interest expense1


7



7


Tax provision


90



94


Depreciation and amortization


22



22


EBITDA **


273



283


Non-cash share-based compensation


17



17


Certain items2 and business interruption insurance proceeds3


(8)



(8)


Adjusted EBITDA **


$

282



$

292




1

Interest expense excludes consumer financing interest expense.

2

Certain items adjustment primarily includes approximately $1 million of after tax combined acquisition costs, litigation settlements and losses and other expenses that have been incurred in the first half of 2017.

3

Includes estimated net business interruption insurance proceeds associated with Hurricane Matthew.

 

2017 ADJUSTED FREE CASH FLOW OUTLOOK




Fiscal Year

2017 (low)


Fiscal Year

2017 (high)

Net cash provided by operating activities


$

115



$

130


Capital expenditures for property and equipment (excluding inventory):





New sales centers1


(9)



(7)


Other


(28)



(25)


Borrowings from securitization transactions


393



398


Repayment of debt related to securitizations


(281)



(286)


Free cash flow **


190



210


Adjustments:





Net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility2


10



10


Increase in restricted cash


(10)



(10)


Adjusted free cash flow **


$

190



$

210




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 2016 and 2017 year ends.

**

Denotes non-GAAP financial measures. Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.


 

A-10
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 and first halves ended June 30, 2017 and June 17, 2016 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 Half Ended June 30, 2017

In our Statement of Income for the quarter ended June 30, 2017, we recorded $0.5 million of net pre-tax items, which included $0.2 million of acquisition costs, less than $0.2 million of litigation settlement expenses and less than $0.2 million of losses and other expense. In our Statement of Income for the first half ended June 30, 2017, we recorded $1.0 million of net pre-tax items, which included $0.6 million of acquisition costs, $0.2 million of litigation settlement expenses and $0.2 million of losses and other expense.

Certain items - Quarter and First Half Ended June 17, 2016

In our Statement of Income for the quarter ended June 17, 2016, we recorded $8.3 million of net pre-tax items, which included $10.7 million of gains and other income, $2.0 million of acquisition costs, and $0.4 million of losses (including $0.2 million of depreciation) from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016. In our Statement of Income for the first half ended June 17, 2016, we recorded $6.2 million of net pre-tax items, which included $10.7 million of gains and other income, $4.6 million of acquisition costs, a $0.3 million reversal of litigation settlement expense, and $0.2 million of losses (including $0.5 million of depreciation) from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016.

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.

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-12
MARRIOTT VACATIONS WORLDWIDE CORPORATION
INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)




(Unaudited)
June 30,
2017


December
30, 2016

ASSETS




Cash and cash equivalents

$

85,151



$

147,102


Restricted cash (including $31,005 and $27,525 from VIEs, respectively)

58,753



66,000


Accounts and contracts receivable, net (including $4,311 and $4,865 from VIEs, respectively)

131,395



161,733


Vacation ownership notes receivable, net (including $655,180 and $717,543 from VIEs, respectively)

1,036,449



972,311


Inventory

744,430



712,536


Property and equipment

249,264



202,802


Other (including $10,647 and $0 from VIEs, respectively)

127,994



128,935


TOTAL ASSETS

$

2,433,436



$

2,391,419


LIABILITIES AND EQUITY




Accounts payable

$

76,456



$

124,439


Advance deposits

59,401



55,542


Accrued liabilities (including $537 and $584 from VIEs, respectively)

112,916



147,469


Deferred revenue

115,536



95,495


Payroll and benefits liability

87,000



95,516


Deferred compensation liability

69,928



62,874


Debt, net (including $671,221 and $738,362 from VIEs, respectively)

773,557



737,224


Other

12,989



15,873


Deferred taxes

156,835



149,168


TOTAL LIABILITIES

1,464,618



1,483,600


Preferred stock — $0.01 par value; 2,000,000 shares authorized; none issued or outstanding




Common stock — $0.01 par value; 100,000,000 shares authorized; 36,839,064 and 36,633,868 shares issued, respectively

368



366


Treasury stock — at cost; 9,669,970 and 9,643,562 shares, respectively

(610,115)



(606,631)


Additional paid-in capital

1,161,507



1,162,283


Accumulated other comprehensive income

12,189



5,460


Retained earnings

404,869



346,341


TOTAL EQUITY

968,818



907,819


TOTAL LIABILITIES AND EQUITY

$

2,433,436



$

2,391,419



The abbreviation VIEs above means Variable Interest Entities.


 

A-13
MARRIOTT VACATIONS WORLDWIDE CORPORATION
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)




Year to Date Ended


June 30, 2017


June 17, 2016


(182 days)


(168 days)

OPERATING ACTIVITIES




Net income

$

77,976



$

60,717


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation

10,192



10,177


Amortization of debt issuance costs

2,726



2,559


Provision for loan losses

26,821



19,591


Share-based compensation

8,451



6,856


Loss (gain) on disposal of property and equipment, net

225



(10,675)


Deferred income taxes

11,778



15,792


Net change in assets and liabilities:




Accounts and contracts receivable

30,079



(11,084)


Notes receivable originations

(227,643)



(124,318)


Notes receivable collections

136,731



120,548


Inventory

16,007



(13,924)


Purchase of vacation ownership units for future transfer to inventory

(33,594)




Other assets

4,406



26,111


Accounts payable, advance deposits and accrued liabilities

(70,470)



(86,355)


Deferred revenue

19,654



22,627


Payroll and benefit liabilities

(8,698)



(27,313)


Deferred compensation liability

7,053



6,536


Other liabilities

(585)



1,081


Other, net

3,021



2,152


Net cash provided by operating activities

14,130



21,078


INVESTING ACTIVITIES




Capital expenditures for property and equipment (excluding inventory)

(11,344)



(15,142)


Purchase of company owned life insurance

(10,092)




Dispositions, net

11



69,738


Net cash (used in) provided by investing activities

(21,425)



54,596


FINANCING ACTIVITIES




Borrowings from securitization transactions

50,260



91,281


Repayment of debt related to securitization transactions

(117,400)



(84,040)


Borrowings from Revolving Corporate Credit Facility

60,000



85,000


Repayment of Revolving Corporate Credit Facility

(12,500)



(40,000)


Debt issuance costs

(1,219)



(231)


Repurchase of common stock

(3,868)



(163,359)


Accelerated stock repurchase forward contract



(14,470)


Payment of dividends

(28,552)



(26,067)


Payment of withholding taxes on vesting of restricted stock units

(9,962)



(3,876)


Other, net

(624)



572


Net cash used in financing activities

(63,865)



(155,190)


Effect of changes in exchange rates on cash, cash equivalents and restricted cash

1,962



(3,238)


Decrease in cash, cash equivalents, and restricted cash

(69,198)



(82,754)


Cash, cash equivalents and restricted cash, beginning of period

213,102



248,512


Cash, cash equivalents and restricted cash, end of period

$

143,904



$

165,758


 

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