VAC
$118.99
Marriot Vacations Worldwide Cor
$.81
.69%
Earnings Details
1st Quarter March 2018
Thursday, May 3, 2018 8:00:00 AM
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Summary

Marriot Vacations Worldwide Cor Misses

Marriot Vacations Worldwide Cor (VAC) reported 1st Quarter March 2018 earnings of $1.43 per share on revenue of $570.8 million. The consensus earnings estimate was $1.54 per share on revenue of $534.1 million. The Earnings Whisper number was $1.58 per share. Revenue grew 17.1% on a year-over-year basis.

The company said it continues to expect 2018 earnings of $6.69 to $7.09 per share. The current consensus earnings estimate is $6.94 per share for the year ending December 31, 2018.

Marriott Vacations Worldwide Corp is a developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands.

Results
Reported Earnings
$1.43
Earnings Whisper
$1.58
Consensus Estimate
$1.54
Reported Revenue
$570.8 Mil
Revenue Estimate
$534.1 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

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



119,810


Deferred revenue

114,243



69,058


Payroll and benefits liability

81,425



111,885


Deferred compensation liability

79,201



74,851


Debt, net (including $758,791 and $845,131 from VIEs, respectively)

1,012,350



1,095,213


Other

11,372



13,471


Deferred taxes

96,549



89,987


TOTAL LIABILITIES

1,693,721



1,803,767


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; 36,976,481 and 36,861,843 shares issued, respectively

370



369


Treasury stock — at cost; 10,411,960 and 10,400,547 shares, respectively

(695,944)



(694,233)


Additional paid-in capital

1,184,106



1,188,538


Accumulated other comprehensive income

22,989



16,745


Retained earnings

554,709



529,396


TOTAL EQUITY

1,066,230



1,040,815


TOTAL LIABILITIES AND EQUITY

$

2,759,951



$

2,844,582



The abbreviation VIEs above means Variable Interest Entities.


 

A-19


MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Three Months Ended


March 31, 2018


March 31, 2017

OPERATING ACTIVITIES




Net income

$

35,981



$

27,890


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




Depreciation

5,601



5,191


Amortization of debt discount and issuance costs

3,936



1,386


Vacation ownership notes receivable reserve

8,875



12,714


Share-based compensation

3,601



3,276


Deferred income taxes

6,714



3,039


Net change in assets and liabilities:




Accounts receivable

29,203



34,195


Vacation ownership notes receivable originations

(105,378)



(112,640)


Vacation ownership notes receivable collections

78,999



76,068


Inventory

1,417



19,801


Other assets

(24,724)



(26,704)


Accounts payable, advance deposits and accrued liabilities

(42,132)



(27,657)


Deferred revenue

45,163



38,771


Payroll and benefit liabilities

(30,650)



(14,500)


Deferred compensation liability

4,351



4,147


Other liabilities

(785)



(197)


Other, net

3,082



924


Net cash provided by operating activities

23,254



45,704


INVESTING ACTIVITIES




Capital expenditures for property and equipment (excluding inventory)

(2,763)



(5,055)


Purchase of company owned life insurance

(9,000)



(8,200)


Dispositions, net



1


Net cash used in investing activities

(11,763)



(13,254)


FINANCING ACTIVITIES




Repayment of debt related to securitization transactions

(86,341)



(54,340)


Debt issuance costs

(976)



(1,219)


Repurchase of common stock

(1,882)




Payment of dividends

(21,255)



(19,010)


Payment of withholding taxes on vesting of restricted stock units

(8,261)



(6,644)


Other, net

15



(16)


Net cash used in financing activities

(118,700)



(81,229)


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

1,726



1,551


Decrease in cash, cash equivalents, and restricted cash

(105,483)



(47,228)


Cash, cash equivalents and restricted cash, beginning of period

490,612



213,102


Cash, cash equivalents and restricted cash, end of period

$

385,129



$

165,874


 

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SOURCE Marriott Vacations Worldwide Corporation