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Marriott Vacations Worldwide Reports Third Quarter 2012 Financial Results

ORLANDO, Fla. – Oct. 18, 2012 – Today, Marriott Vacations Worldwide Corporation (NYSE: VAC), the leading global pure-play vacation ownership company, reported third quarter 2012 financial results and updated the company’s full-year guidance for 2012 based upon continued positive trends in its North America segment.

Third Quarter 2012 highlights include:

Third quarter 2012 reported net income totaled $6 million, or $0.17 per diluted share, compared to reported net loss of $221 million in the third quarter of 2011. Results for 2011 reflected pre-tax non-cash impairment charges and reversals of $320 million. Reported development margin increased to 16.6 percent in the third quarter of 2012 from 3.5 percent in the third quarter of 2011.

Third quarter 2012 adjusted net income totaled $8 million, a $5 million increase from $3 million of adjusted net income on a pro forma basis in the third quarter of 2011. Third quarter 2012 adjusted results exclude $3 million of pre-tax charges related to organizational and separation related efforts. Third quarter 2011 adjusted results include $18 million of pre-tax pro forma adjustments to reflect the company’s position as if it were a standalone, public company since the beginning of 2011 rather than from the date of the Spin-Off in November 2011. Results for 2011 also exclude $320 million of pre-tax non-cash impairment charges and reversals and $5 million of pre-tax charges comprised of costs related to Americans with Disabilities Act (“ADA”) compliance, Hurricane Irene damage at a resort in the Bahamas and claims asserted related to a Luxury segment project. In addition, adjusted development margin is adjusted for the impact of revenue reportability.

Non-GAAP financial measures, such as Adjusted EBITDA (earnings before interest expense, taxes, depreciation and amortization) as adjusted, Adjusted EBITDA on an adjusted pro forma basis, adjusted net income, adjusted net income on a pro forma basis and adjusted development margin are reconciled in the Press Release Schedules that follow. Adjustments are shown on schedule A-1 and described in further detail on schedule A-18.

“Our strong third quarter performance continues to underscore the successful execution of our top-line growth and margin expansion strategies. In our key North America segment, we again generated solid year-over-year growth in contract sales, VPG and development margin,” said Stephen P. Weisz, president and chief executive officer. “In connection with our separation efforts from Marriott International and related evaluation of our organizational structure, we expect to drive $15 million to $20 million of annualized cost savings by 2014.”

Weisz concluded, “Given three consecutive quarters of strong performance and a positive outlook for the fourth quarter, we are raising our full year Adjusted EBITDA as adjusted guidance to $130 million to $140 million from $115 million to $125 million.”

Third Quarter 2012 Results

For the third quarter, which ended September 7, 2012, total revenues were $383 million, including $78 million in cost reimbursements. Total revenues increased $5 million from the third quarter of 2011 reflecting higher rental revenues, resort management and other services revenues and cost reimbursements. These increases were partially offset by lower financing revenues from lower interest income on a declining vacation ownership notes receivable portfolio and lower revenues from the sale of vacation ownership products due to lower revenue reportability.

Total company-owned contract sales were $171 million, a 4 percent increase from $164 million in the third quarter of 2011, driven by a 13 percent increase in contract sales in the North America segment, partially offset by lower contract sales in the Europe, Luxury and Asia Pacific segments.  

Development margin as reported was $24 million, a $19 million increase from the third quarter of 2011.  This increase was driven by higher total company-owned contract sales, reductions in the cost of vacation ownership products mainly from favorable product cost true-up activity totaling $13 million, and lower marketing and sales expenses, partially offset by the impact of lower revenue reportability year-over-year.

Reported development margin increased 13.1 percentage points to 16.6 percent in the third quarter of 2012 from 3.5 percent in the prior year quarter. Excluding the impacts of revenue reportability, primarily in the North America segment, and other charges, adjusted development margin increased 11.9 percentage points to 20.9 percent in the third quarter of 2012 from 9.0 percent in the third quarter of 2011. The impact of revenue reportability and other charges is illustrated on schedules A-12 through A-15.

Rental revenues totaled $57 million, an 8 percent increase from the third quarter of 2011, reflecting higher demand for rental inventory. Transient keys rented increased 11 percent on a company-wide basis, as additional available keys to rent were higher as more owners elected to exchange Marriott Vacation Club Destination points for alternative usage options. Rental revenue net of expenses was a loss of $1 million, a $1 million improvement from the third quarter of 2011, reflecting higher redemption costs associated with Marriott Rewards points issued prior to the Spin-Off, which partially offset the increase in revenues.

Resort management and other services revenues totaled $60 million, a 5 percent increase over the third quarter of 2011, reflecting higher annual fees in connection with the company’s Marriott Vacation Club Destinations program. The company generated $12 million of resort management and other services revenues, net of expenses, a $2 million increase from the third quarter of 2011.  

Adjusted EBITDA, as adjusted for organizational and separation related costs and other charges, was $33 million in the third quarter of 2012, an increase of $17 million from Adjusted EBITDA on a pro forma basis of $16 million in the third quarter of 2011. Third quarter 2012 reported net income totaled $6 million compared to reported net loss of $221 million in the third quarter of 2011.

Segment Results

North America

Total North America contract sales increased $15 million, or 13 percent, to $143 million in the third quarter of 2012. VPG increased 19 percent to $3,051 in the third quarter of 2012 from $2,560 in the third quarter of 2011, driven by higher pricing and improved closing efficiency.

Revenues from the sale of vacation ownership products increased $12 million to $122 million in the third quarter, driven mainly by the $15 million increase in contract sales and $5 million in lower vacation ownership notes receivable reserve activity due to improved default and delinquency activity, offset partially by $8 million of lower year-over-year revenue reportability. The $8 million of lower revenue reportability included $6 million of unfavorable revenue reportability in the third quarter of 2011 compared to $14 million of unfavorable revenue reportability in the third quarter of 2012 resulting from certain financed sales not having met the downpayment requirement for revenue recognition purposes by the end of the quarter. Reported development margin increased 14.4 percentage points to 20.5 percent in the third quarter of 2012 as compared to 6.1 percent in the prior year quarter. Excluding the impact of revenue reportability and other charges, adjusted development margin increased 14.5 percentage points to 23.8 percent in the third quarter of 2012 from 9.3 percent in the third quarter of 2011. The impact of revenue reportability is illustrated on schedules A-14 through A-15.

Third quarter 2012 North America adjusted segment results increased $19 million to $71 million from $52 million in adjusted segment results on a pro forma basis in the third quarter of 2011. The increase was driven by $18 million of higher development margin and $5 million of higher resort management and other services revenues, net of expenses. These increases were partially offset by $1 million of lower rental revenues net of expenses resulting from higher than expected redemption costs associated with Marriott Rewards points issued prior to the Spin-Off, and $3 million of lower financing revenues from a declining notes receivable portfolio.

The increase in development margin primarily reflected $12 million of higher favorable product cost true-up activity as well as the impact of higher contract sales, lower vacation ownership notes receivable reserve activity and lower marketing and sales expenses, partially offset by the impact of revenue reportability year-over-year. The favorable product cost true-up activity related mainly to higher revenues the company expects to generate over the life of the projects, as it aligned its assumptions around future price increases with the increases it has been able to achieve since the launch of the points program two years ago. To a lesser extent, the product cost true-up activity also reflects lower overall development costs on projects the company is completing.

Reported North America segment financial results increased $17 million year-over-year to $70 million in the third quarter of 2012.

Luxury and Europe

As the Luxury and Europe segments continue to sell through their remaining inventory, combined third quarter 2012 gross contract sales declined $17 million to $13 million, primarily driven by $12 million of lower joint venture contract sales in the Luxury segment. Adjusted segment results for Luxury and Europe were break-even in the third quarter, a $1 million decrease from 2011, reflecting the impact of lower contract sales partially offset by lower marketing and sales expenses. Reported Luxury and Europe combined segment financial results increased $113 million in the third quarter of 2012, as 2011 results included $111 million of pre-tax non-cash impairment charges and reversals.

Asia Pacific

Asia Pacific contract sales declined $3 million to $15 million in the third quarter of 2012. Total revenues declined $2 million to $20 million and segment results declined $1 million to $1 million in the third quarter of 2012 from the third quarter of 2011 primarily reflecting lower revenues from the sale of vacation ownership products.

Organizational and Separation Plan

In connection with its continued organizational and separation related activities, the company expects the total future spending for these efforts will be approximately $30 million to $35 million, with costs being incurred in 2012 through 2014. This includes work to complete its separation from Marriott International, Inc., including discontinuing certain technology, human resources and other administrative services currently being performed under transitional service agreements, as well as costs to improve overall organizational effectiveness. The company anticipates annualized savings associated with these efforts to be between $15 million and $20 million, with the full benefit being realized by 2014.

Balance Sheet and Liquidity

On September 7, 2012, cash and cash equivalents totaled $212 million. Since the end of 2011, real estate inventory balances declined $62 million to $891 million, including $440 million of finished goods, $164 million of work-in-process and $287 million of land and infrastructure. The company had $793 million in corporate level debt outstanding at the end of the third quarter of 2012, a decline of $57 million from year-end 2011, including $790 million in non-recourse securitized notes. The company had $195 million in available capacity under its revolving credit facility after taking into account letters of credit and $47 million of vacation ownership notes receivable eligible for securitization.

Outlook

For the full year 2012, the company is increasing its Adjusted EBITDA as adjusted, adjusted net income and adjusted fully diluted earnings per share guidance based upon three quarters of positive trends in company development margin improvement and higher North America contract sales and VPG. North America contract sales are expected to increase between 12 percent and 14 percent on a full year basis; however, the company is reducing its gross contract sales growth guidance to reflect the impact of closing sales centers in the Asia Pacific segment as well as its decision to sell the remaining luxury inventory through the North America points program.

Current Guidance

Previous Guidance

Adjusted EBITDA as adjusted

$130 million to $140 million

$115 million to $125 million

Gross contract sales growth

2 percent to 4 percent

4 percent to 8 percent

North America contract sales growth

12 percent to 14 percent

n/a

Adjusted net income

$42 million to $47 million

$37 million to $43 million

Adjusted fully diluted earning per share

$1.17 to $1.31

$1.03 to $1.17

Adjusted free cash flow

$130 million to $145 million

$130 million to $145 million

See schedule A-17 for a reconciliation of Adjusted EBITDA and adjusted free cash flow.

Third Quarter 2012 Earnings Conference Call

The company will hold a conference call at 10:00 a.m. EDT today to discuss these results. Participants may access the call by dialing (877) 941-0844 or (480) 629-9835 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 (800) 406-7325 or (303) 590-3030 for international callers. The replay passcode is 4564288. The webcast will also be available on the company’s website for 90 days following the call.

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About Marriott Vacations Worldwide Corporation
Marriott Vacations Worldwide Corporation is the leading global pure-play vacation ownership company. Through a Spin-Off in late 2011, Marriott Vacations Worldwide was established as a separate, public company focusing primarily on vacation ownership experiences. 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. Marriott Vacations Worldwide offers a diverse portfolio of quality products, programs and management expertise with more than 60 resorts and more than 420,000 Owners and Members. Its brands include: Marriott Vacation Club, The Ritz-Carlton Destination Club and Grand Residences by Marriott. 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 earnings trends, estimates, and assumptions, and similar statements concerning anticipated future events and expectations that are not historical facts. We caution 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 our Annual Report on 10-K for the year ended December 30, 2011 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 presentation. These statements are made as of October 18, 2012 and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

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